Senate bill gives giant tax break to Big Oil

An obscure provision in the Senate Finance Committee’s draft of the One Big Beautiful Bill Act shields domestic onshore oil and gas drillers from the Inflation Reduction Act’s corporate alternative minimum tax, a benefit that will largely be taken by companies based in Oklahoma. That state’s senior senator, James Lankford (R-OK), secured the tax break even though it did not appear in the House version of the bill.

The corporate alternative minimum tax (CAMT), a signature achievement of Sen. Elizabeth Warren (D-MA), was designed to prevent companies from using elaborate accounting tricks to avoid paying taxes entirely. The CAMT requires corporations with adjusted earnings over $1 billion to pay a minimum rate of 15 percent of the “book profits” that they report to shareholders. There are a couple of exemptions on what counts as income, including adjustments for certain types of property and foreign taxes. But though the rules are complicated, it’s a fairly clean tax provision as these things go.

The Senate Finance Committee aims to change that. Section 70523, buried on page 343 of the 549-page draft text, makes a tweak to the CAMT by directing the Internal Revenue Service to take into account “intangible drilling and development costs.”

The language mirrors a bill, the Promoting Domestic Energy Production Act, that Sen. Lankford introduced earlier this year. The American Petroleum Institute (API) immediately praised the bill as “critical to supporting the production of our nation’s abundant oil and natural gas resources.”

Corporate tax deductions for intangible drilling costs have been available since 1913, making it “the oldest and the largest fossil fuel subsidy on the books,” according to a recent report on the Lankford bill. In current law, all the costs of drilling oil and gas wells can be deducted in the year they are incurred, rather than over the lifetime of the well.

The CAMT weakens that deduction by requiring drillers to pay some tax, but the Lankford bill would effectively apply the deduction to the CAMT directly, taking many drillers below the threshold of qualifying for minimum taxes. “We need to be able to get some relief to them so they’re not constantly worried about it,” Lankford said in a CNBC appearance in January.

Lankford is a huge friend to the oil and gas industry, and the industry has returned the favor, contributing more than $545,000 to his campaigns between 2019 and 2024, according to Open Secrets.

The industry always targeted the deduction for inclusion in the Republican mega-bill, where it would be well protected behind a thicket of other tax changes. But it didn’t appear in the House version of the Big Beautiful Bill. Lankford, a member of the Senate Finance Committee, was able to muscle the provision into that committee’s text, which was released on Monday.

Democrats are not happy about the provision. “At a time when we need to tap renewables, adding something that sticks out for a handful of oil and gas companies is outrageous,” said Sen. Ron Wyden (D-OR), ranking Democrat on the Senate Finance Committee, at a press event on Tuesday.

Sen. Warren, who wrote the tax measure this provision would evade, added: “It’s an insult to working people to give the biggest oil companies in the world a massive tax handout while slashing health care and food assistance for millions of families. Big oil companies don’t need a break—working people do.”

Wyden believes that the provision may run afoul of Senate budget reconciliation rules, which require everything in the bill to have a primary budgetary purpose, rather than a policy determination. He suggested that the provision could be brought up in the “Byrd bath,” where non-budgetary items are often tossed out. “We are honeycombing the bill,” Wyden said. “A handout to big oil and gas companies, that looks like policy and could give us some leverage.”

Adding to the suspicion that the Lankford provision isn’t primarily a budgetary change (it would cost the government revenue, after all) but a policy rider for favored businesses instead, lobbying disclosures show that several oil and gas companies and trade groups officially lobbied for the measure in the first quarter of this year, including API, the American Exploration & Production Council, ConocoPhillips, Civitas Resources, and Ovintiv.

In addition, Securities and Exchange Commission filings and earnings calls cited in the report identify several companies explicitly discussing the CAMT and their exposure to it. This includes EOG Resources, which disclosed $76 million in CAMT liability in 2023 in its 2024 annual report to shareholders. APA Corporation’s annual report shows $74 million in CAMT expenses in 2024; Ovintiv disclosed $40 million. Marathon Oil said in a recent earnings call that they would have no tax liability if it weren’t for the CAMT. “We expect we are going to be AMT taxable at a 15 percent rate starting in 2024 and we expect that should continue at that rate for about a decade,” chief financial officer Dane Whitehead said on the call.

Other companies warned of potential CAMT liability in upcoming years. “Any incremental taxes attributable to CAMT,” wrote Devon Energy in an SEC filing, could be significant and adversely impact our financial condition, results of operations and cash flows.” Expand Energy, which was created by a merger between Chesapeake and Southwestern Energy, stated on an earnings call in January 2024 that “we will hit AMT over a period of a few years across the combined organization.” Civitas Resources said it expected to pay the CAMT if oil prices rose above $80 a barrel.

Several of these companies, including EOG Resources, Devon Energy, and Expand Energy, are headquartered in Oklahoma. Marathon Oil derives a significant percentage of its oil and gas production from Oklahoma wells, as does Ovintiv. APA Corporation’s first wells were drilled in Oklahoma, and it maintains reserves there.

The nature of the tax break, then, which favors domestic drillers set up onshore in the U.S., specifically benefits a handful of companies in and around Lankford’s home state.

Sen. Lankford’s office did not respond to a request for comment.

There are other handouts to oil and gas companies in the Republican mega-bill, including the proposed sale of up to 250 million acres of public land, including for hydrocarbon exploration. At the same time, the bill phases out production tax credits for solar and wind energy, while eliminating consumer subsidies for electric vehicles. “They would have us go back to picking winners and losers,” Wyden said.

The U.S. government has delivered hundreds of billions of dollars in fossil fuel subsidies for more than a century, and this tax break just adds to that giveaway. “Obviously, no tax is ever going to be minimum enough for Big Oil,” said Lukas Shankar-Ross of Friends of the Earth, a co-author of the report. “It is simply obscene to shred the social safety net in order to send polluters another handout.”