1220 L Street, NW • Washington, DC 20005-4070 • www.api.org 1
2016 Washington Report
Brian M Johnson, MPA
Director, Federal Relations
American Petroleum Institute
Prepared for API Customs & International Trade Conference – New Orleans, LA
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A Review of API
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Mission
To influence public
policy in support of a
strong and viable U.S.
oil and natural gas
industry essential to
meet the energy needs
of consumers in an
efficient and
environmentally
responsible manner.
As the U.S. oil and natural
gas industry’s primary trade
association, API:
Engages in federal and state
legislative and regulatory advocacy
that is based on scientific research;
technical, legal and economic
analysis; and public issues
communication;
Provides an industry forum to develop
consensus policies and collective
action on issues impacting its
members; and
Works collaboratively with all industry
oil and gas associations, and other
organizations, to enhance industry
unity and effectiveness in its
advocacy.
API also provides the
opportunity for standards
development, technical
cooperation and other
activities to improve the
industry’s competitiveness
through sponsorship of
self-supporting programs.
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About API
The only national trade association
that represents all aspects of America’s
oil and natural gas industry.
Represents members on legislative,
regulatory, and other policy issues
impacting the industry.
Speaks on behalf of the industry in a
variety of forums and public events,
including the media.
Provides services to members at both
the national and state level, with over
250 staff located in Washington, D.C.
and in 33 state capitals, and 5 global
offices.
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API Engagement
Legislative & Regulatory
o Federal Level
o State Level
Communications
Mobilization
Technical
o Standards Development
o Certification
o Safety
o Training
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U.S. Industry Size/Strength
OIL & NATURAL GAS
2.8 MILLION
Building Construction
1.4 million
Machinery Manufacturing
989,000
Utilities
565,000
Rail Transportation
212,000
Coal
81,000
Biorefineries
9,000
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State &Mobilization Assets
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Gridlock in Washington, combined with broader support for natural gas, has
caused our opposition to—smartly—refocus their efforts on state
legislatures and local and state ballot initiatives.
Industry’s Added Challenge:
Federal, State and Local
FEDERAL • Increased regulations
on fracking
• Ozone regulations
• Offshore drilling 5-year
program
• Renewable Fuel
Standard
• Approval of KXL
STATE • Statewide fracking bans
• Infrastructure battles
• Severance tax fights
• Biofuels Mandates
LOCAL • Local Control
• Community Bill of
Rights
• Fracking bans
• E-15
• Infrastructure battles
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Effective Grassroots Advocacy • Constituents Hold the
Power: Key to re-election is
a “happy” constituency
• Power in Numbers: The
more legislators hear from
their voters on a particular
issue, the more likely they
are able to support or change
their position
• Air Cover: Showing strong
grassroots support is the
most effective way to provide
“air cover” to influential
legislators
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API Program Model
Increased
Access to Oil
& Natural Gas
Resources
Increased
Shareholder
Value
Increased
Energy
Production
More Jobs
ENERGY
NATION
ENERGY
CITIZENS
ENERGY
FORUM
Environmental Performance & Integrity
Economic Growth
& Employment
Affordable
& Reliable Energy
Labor Groups
Veterans
Affinity Groups
Business Groups
Women
Conservation
& Outdoor
Retirees
Employees &
Families
Vendors & Suppliers
Royalty
Holders
Registered
Voters
Micro-Targets
Energy
Security
Investors
EXPANDING
THE ENERGY BASE
Native
Americans
Engage & Educate
Motivate Activate
General Public
Industry Employees
Non-Traditional
Strategic Partners
Stakeholder Groups & Interests
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Maximize value by reaching outside of Capitol Hill to build key, long-term ally
relationships relying on the principle that conditioned allies are likely to be better
advocates and be willing to underscore implications on Election Day.
Program Approach
Policymakers
Community-based value proposition of the industry through elected officials and staff, business leaders, small-business owners, community leaders, media.
Local Influentials
Industry, fact-based expertise and perspective to the policymaking process.
Industry Voices
Empower rank-and-file
constituent and
industry voices to
demonstrate
widespread support
and communicate the
personal/community
impact of industry and
energy policy.
Energy Voters
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Energy Nation
Advocacy platform for employees, spouses, vendors, and retirees of oil and gas industry
– Education and mobilization tool
– Networking and community-building resource
– Facilitator for digital, social, and community participation
• Infrastructure and support resource for industry partners
– Document and promote industry presence and impact
– Provide communications and engagement tools and support
– Advocacy trainings, events and logistics
energynation
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Energy Citizens
• Citizens concerned about energy who are self-
motivated and active in their communities
• More than 1,300,000 members in 435 CD;
• Nearly 400,000 prospective champions: Boots On
The Ground
• Powerful online community: Reach and impact
• Volume activations
• Online discussion impacts issue sentiment now more
than ever
• Grassroots, community voices: Diverse and
active
• Local volunteer leaders and organizers in 12 states
• Scaleable infrastructure
• House parties and member events
• Phone banking and canvassing
• Meetings with legislators
• Earned media
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Energy Forums
• Active on-the-ground teams in 23 states
• Grass-tops and Strategic Partner Outreach
• Cultivate relationships with politically influential third parties
• Facilitate new public policy outcomes for the industry by surrounding
lawmakers with the most politically persuasive constituents.
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Microtargets
Political microtargeting: combines demographic and consumer data, voter
behavior and in-depth surveys to most efficiently and effectively identify target
voters and the messaging which can motivate and activate those voters.
In the case of API, we have identified high propensity voters (3 of 4 and 4 of 4
voters) who are likely to support, or be persuaded to support API’s policy
positions.
– Highly informed, motivated
– Majority non-Republican
– Growing women and minorities
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Louisiana Assets
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Louisiana Heat Map -- Microtargets
• Contacted over 2.1 million voters across the country to
educate them on the issue
• Sent over 110,000 emails/calls to Members of Congress
• Over 60,000 micro-target contacts with government
officials
• Oct 9: Lifting the export ban passed the House
• In December it was signed into law as
part of a larger deal
• Success!
Example: Crude Exports
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Why Mobilization Matters
• Complements federal/state relations
• Enforces D.C. message on the ground
• Voters continue to support the energy
sector
• Places pressure on members back home
• Puts a real face on the issue
• Continues the dialogue
• Moves the needle
• Results in non-traditional allies
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2016 Legislative Outlook
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How 2015 set the stage
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• 2015 cleaned the slate for 2016…
• DOA Presidential Budget
• FAA and why it matters
• TPA / Customs / TPP / MTB / T-TIP (dizzy
yet?)
• A tale of two tax reforms
• …but an election year? Can anything happen?
Overview
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Obama Budget
• Mainly - same old,
same old
• Some items reflect
price impact on
industry
• Some new items of
note
– Per barrel oil fee
– EOR
Issue FY 2010 FY2017 Reinstate Superfund taxes
(approx. industry share - 50%) ($8,379) ($11,160)
Repeal LIFO (approx. industry share - 35%) ($25,948) ($28,467)
Modify tax rules for dual capacity taxpayers ($4,490) ($9,635)
Levy tax on certain offshore oil and gas
production ($5,283) n/a
Per barrel tax on crude oil n/a ($319,070) Repeal expensing
intangible drilling costs ($3,349) ($10,050)
Repeal deduction for tertiary injectants ($62) ($77) Repeal passive loss exemption ($49) ($103) Repeal percentage depletion ($8,251) ($4,990)
Repeal section 199 for
oil and gas activities ($13,292) ($9,149)
Increase G&G amortization period for
Independents ($1,189) ($1,515)
EOR/Marginal Well Credits n/a ($8,803)
Oil Spill Tax n/a ($1,352)
Treat MLPs for Fossil fuels as C corps n/a ($1,408)
Total - Tax Only ($70,291) ($405,779)
Amounts in $M and over 10 year period per OMB score
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FAA…
• Likely the only thing moving with a tax title
• End of 2015 deal wasn’t good for everyone
• Last hope for many other industry’s tax items
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• TPA was anything but easy
• TPP has major issues, WH prepared to abandon
• T-TIP work continues, long road ahead
• MTB has renewed hope recently
• 2016 politics complicates trade agenda
Trade Engagement
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• Issue: CBP 2009 ruling continues to remain problematic for
trade facilitation and harmonization.
• Goal: To codify status quo into law – ACHIEVED
• Approach:
• API has formed the Business Residue Coalition
• Had bi-partisan House and Senate bills introduced
• Our language made it into the Chairman’s marks in both
Chambers
• Passed and signed into law
Customs / Residue
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House Tax Activity
• Speaker Ryan task forces
– Focused on poverty and pro-growth message
– Areas
• International Only
– API international only principles
– Changes to subpart F
– Patent-box proposal
• National security
• Tax reform
• Reducing regulatory
burdens
• Health care reform
• Poverty reduction
• Restoring constitutional
authority
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Senate Tax Activity
• Energy tax hearing
• Business tax reform working group hearing
• Corporate Integration
– Another path to corporate tax reform
– Dividend deduction method
• Avoids politics of rate cut
• Companies withholding on shareholder
– Impacts
• Tax exempt shareholders
• Treatment of foreign taxes
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Direction of Country and Presidential
Job Approval
Americans are increasingly sorted into think-
alike communities that reflect not only their
politics but their demographics.
“These days Democrats and
Republicans no longer stop at
disagreeing with each other’s ideas.
Many in each party now deny
the other’s facts, disapprove of each
other’s lifestyles, avoid each other’s
neighborhoods, impugn each other’s
motives, doubt each other’s
patriotism, can’t stomach each other’s
news sources, and bring different
value systems to such core social
institutions as religion, marriage and
parenthood. It’s as if they belong not
to rival parties but alien tribes.” Source: Pew Research Center
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Public Opinions
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No body likes me…
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2016 Presidential Head-to-Head
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Open Convention & What Could
Happen… ¯\_(ツ)_/¯ • Trump wins a majority of delegates and goes on to win on a first ballot.
• Once he amasses the necessary delegates, he turns into a professional candidate.
• Trump wins a majority of delegates and goes on to win on a first ballot…but the congressional wing of
the party goes it alone.
• He wins the nomination, but GOP gives up and gives a back-handed endorsement to Hillary Clinton by
campaigning on the need to have a solid Republican Congress in order to stop what they consider
President Hillary Clinton’s worst ideas.
• Trump wins enough delegates to win on a first ballot but he does not have enough friends at the grass
roots level of the Republican Party to elect delegates who are loyal to him.
• The draft rules for the Republican National Convention stipulate that delegates have to vote for the person
who won their state, or at least cast their votes proportionally. But these rules can be changed by a vote of
the convention rules committee which is different from the Republican National Committee’s rules
committee. If the convention rules committee changes the rules and all convention delegates vote to agree
with them, they could open the door to defections from Trump. Then, Trump fails to get a majority on the
first ballot; Cruz and Kasich make a deal and Cruz most likely wins the presidential nomination on the
second ballot, with Kasich becoming the vice presidential nominee.
• The outside compromise.
• This is a variation of option #3 except that the convention does not turn to Cruz or Kasich and instead
someone like Speaker Ryan will become their standard bearer.
• Trump goes into the convention with a plurality but not a majority of delegates.
• This guarantees a second ballot even without his opponents having to win votes on rule changes. In this
scenario, there is no test vote to determine which other candidate might have the strength to put together a
majority so expect either a long period of negotiations between the first and second ballot or more than two
ballots. If none of the candidates who have delegates in the hall can win on a second ballot, the convention
could well turn to an outside candidate. Basically why Cruz and Kasich are telling people to vote for them
and why Paul Ryan keeps saying “hell no” – this could happen.
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Legislative Outlook: FAA gets punted through July, then likely another short
term punt until Sept where it could be combined with a CR. House fails to pass a
budget, Senate sends appropriation bills to the House. Tax reform drafts are
released in the House and Senate and see no further action. Puerto Rico is
addressed. TPP has little potential in Lame Duck.
Political Environment: Very toxic, internal GOP fighting with far right (aka
Freedom Caucus), Dems unify behind likely Clinton nominee who trends toward
center post-nomination.
Political Landscape: Senate GOP control narrows or flips +/- 1-2, House retains
GOP control, Clinton likely elected (especially with Trump nomination).
Key Takeaways
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Questions?
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