Analyst: Congress may punt on spill bill

A research note Tuesday from FBR Capital Markets raises the prospect that Congress won’t act this year to tighten oil-industry drilling and liability rules, despite the massive BP oil spill.

The House passed a sweeping bill in late July, but the Senate delayed action until the fall amid divisions over several issues. Now, FBR argues, the senators may fail to bridge their differences entirely. Their note cites "the increasing possibility that Congress will be unable to compromise on an oil spill-response bill."

At the very least, any eventual deal is unlikely to be as expansive as initially envisioned. “Our contacts suggest that Democratic leaders are losing momentum for passing stringent offshore drilling legislation,” FBR states.

“The greatest sticking point is the removal of the liability cap for economic damages, which would drive up insurance costs for Gulf of Mexico drilling operations. However, there are a number of tangential sticking points as well. Most notably, Democrats are divided on how much revenue the federal government should share with costal states. Additionally, progressive Democrats remain unhappy with the leadership's decision to remove all climate change and renewable provisions from the bill. It will be difficult to compel them to compromise further on ‘holding BP accountable.’ Likewise, political pressure to end the [deepwater drilling] moratorium legislatively could fracture Democrats."

FBR also cites the packed, election-shortened Capitol Hill schedule and other barriers, although it also notes that compromise remains possible, citing negotiations over liability limits among senators including Mary Landrieu (D-La.) and Mark Begich (D-Alaska).

At the very least, FBR predicts, the longer the delay, the better the outlook for independent oil companies (compared to majors like BP and Exxon). “In our view, the capping of the [BP] well, and the likely eventual ‘kill,’ will help alleviate pressure to act precipitously and give the industry the time to marshal evidence and resources against prohibitively restrictive legislation,” FBR writes.