October 2014

The last barrel

Mid-term elections have implications for U.S. upstream sector

Kurt Abraham / World Oil


Forgive us, our valued readers outside the U.S., for this month’s page discusses a very U.S.-centric topic—the 2014 mid-term congressional elections. While they may not affect other countries directly, policy actions emanating from the new Congress, as well as the final two years of the Obama administration, will have repercussions for upstream activity globally.

The mid-term elections are important for U.S. producers, because they determine the balance-of-power between Democrats and Republicans for the next two years, with widely differing potential scenarios. Right now, the Republicans control the U.S. House of Representatives with a 234-199 (two empty seats) majority. As this is being written, the Republicans appear headed toward adding several seats to their majority. Ironically, one of the most liberal U.S. newspapers, The Washington Post, predicts a 10-seat pick-up, for a 244-191 margin. If that happens, the Republicans would have their largest majority since Nicholas Longworth (Rep. – Ohio) controlled the Speaker’s gavel 85 years ago, in 1929.

This means that oil-and-gas friendly Republicans will remain in control of several key committees, including Energy and Commerce; Natural Resources; Space, Science and Technology; and Ways and Means (industry taxation matters).

Senate scenarios. The concern for Republicans, and the E&P industry by extension, is what happens to control of the U.S. Senate. Right now, Democrats hold a 55-45 advantage. However, if the Republicans can take back the Senate, they would eliminate any chance of the Obama administration harming the industry legislatively during the next two years. This is particularly helpful for long-standing industry tax breaks, as well as punitive environmental matters. Three committees specifically affect the industry, including Energy & Natural Resources; Commerce, Science, & Transportation; and Finance.

Of course, the White House may try to implement controversial energy measures through “Executive Orders.” We already have seen a rash of them in the last 12 months, with more attempts to come during the next two years. Technically speaking, if Republicans control both houses after Jan. 1, 2015, they could move to “de-fund” some of Mr. Obama’s more controversial programs. But, as our contributing editor for Regulatory Affairs, David Blackmon, pointed out, such resolutions may be difficult to pass. That’s because Democrats are likely to filibuster any attempt to de-fund Mr. Obama’s sacred cows. To cut off any filibuster requires a “cloture” (bringing all debate on a measure to an end) motion, to move a measure to a vote. In that case, a “super-majority” of three-fifths of the Senate is needed for cloture, and to pass the bill. If the entire Senate is present, that means 60 votes, not 51. So, it’s going to be difficult to pass any bill that has even a mild threat of a filibuster.

Nevertheless, it is better to control the Senate than not, and Republicans are edging closer to their goal. Again, ironically, The Washington Post predicts a large GOP gain, to a 52-48 margin. By comparison, Politico and University of Virginia Professor of Politics Larry Sabato would only commit to a 50-45 edge for the Republicans, with five seats still in play. Real Clear Politics, at our press time, was only committing to a 46-45 edge, with nine seats rated as toss-ups. The New York Times estimated an identical scenario, although it did predict a 65% chance that the GOP will seize control.

Already, the GOP is estimated to pick up at least three seats, bumping their total to 48. In Montana, incumbent Dem. Sen. John Walsh dropped out of that state’s race, due to a plagiarism scandal. The party’s replacement candidate, state Rep. Amanda Curtis, is given no chance of beating Republican contender and former state senator, Ryan Zinke, a Navy veteran. Walsh has been a member of the Commerce, Science, and Transportation panel. In South Dakota, incumbent, three-term Democratic Sen. Tim Johnson, a member of the Energy & Natural Resources Committee, is retiring. GOP nominee, former Gov. Mike Rounds is expected to defeat Democratic businessman Rick Weiland handily.

In West Virginia, 77-year-old, five-term Dem. Sen. Jay Rockefeller is also retiring, and, in a state turning more Republican every month (thanks to Mr. Obama’s anti-coal policies), GOP Rep. Shelley Capito is expected to defeat W.V. Secretary of State Natalie Tennant. Rockefeller chairs the Commerce, Science, & Transportation Committee, so, if Republicans gain control, then Ranking Member John Thune (South Dakota), would take over the panel.

Remaining competitive races. So, who are the remaining Democratic senators most in peril? One obvious candidate is Sen. Mark Pryor (Arkansas), a member of the Commerce, Science, & Transportation panel, in a toss-up with GOP challenger and U.S. Rep. Tom Cotton. Another is three-term Sen. Mary Landrieu (Louisiana), the chairman of the Energy & Natural Resources panel, who is battling the leading GOP candidate, U.S. Rep. Bill Cassidy, in Louisiana’s somewhat bizarre open primary on Election Day, Nov. 4. If she loses, and Republicans control the Senate, then Ranking Member, Sen. Lisa Murkowski (Alaska), would become chairman.

Among five to seven other seats in play, the Colorado race between incumbent Dem. Sen. Mark Udall and GOP opponent, U.S. Rep. Cory Gardner, is of significance, since Udall is on the Energy & Natural Resources Committee. Up in Alaska, Dem. Sen. Mark Begich is given a high chance of losing to GOP contender Dan Sullivan, a former state attorney general and natural resources commissioner. Begich is on the Commerce, Science & Transportation panel.

Both parties have spent huge sums of money, making this one of the most expensive elections, ever. It will be interesting to see how all the money and maneuvering plays out on Nov. 4—be assured that Mr. Obama is watching and biting his nails. wo-box_blue.gif

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Kurt Abraham
World Oil
Kurt Abraham kurt.abraham@worldoil.com
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