The highlight reel of recent federal legislation is fairly unimpressive. Congress and President Obama have teamed up to name four new post offices, pass the Sunscreen Innovation Act and bicker.

On November 5, the political purgatory seemed to subside as midterm elections swept Republican allies of the oil and gas industry into power. In a brief détente, both parties said they would try to work together.

Within days, it was clear Obama was still willing to be a lone wolf and that Republicans were willing to retaliate—one representative later called for clipping Air Force One’s wings over Obama’s immigration policy.

Nevertheless, Republican control of the Legislative Branch bodes well for energy companies. Conservatives plan to introduce energy bills that may include rollbacks of EPA regulations, making certain tax benefits permanent and greater access to public lands.

While the new majority lacks the votes needed to overcome a Democratic filibuster in the Senate, the hope is that Republicans and Obama will set aside differences, said Deborah Byers, managing partner of EY’s Houston office and the Southwest Region’s energy market segment leader.

"Really, both sides, Republicans and Democrats, are at risk here of just having done nothing," Deborah Byers, managing partner of EY's Houston office, said. "Somebody has to decide they're going to be the better person here."

“You would think that common sense would prevail and that people would find a way to work things out and get things done,” Byers said. “That’s going to be important, because of the issues that people are looking at in terms of energy.”

On the other hand, as Napoleon said, “In politics, stupidity is not a handicap.”

The energy industry has grappled with uncertainty over taxes and fears of overreaching regulations for years. Obama’s intent to repeal intangible drilling cost expenses was likely one of the most talked about oil and gas anxieties of the past five years.

Much work is in store for Congress in 2015, especially with WTI prices in the range of $67 to $70 in December.

Byers said the transportation fuel excise tax, which has not increased since the 1990s, has put a hole in the highway trust fund and will likely be addressed. Renewable fuel standards, responsible for ethanol, are likely to face heavy scrutiny as even some Democrats believe they only serve to promote corn-based fuel, according to Bracewell & Giuliani LLP.

The 1975 ban on crude exports may be taken up, easing the strain on domestic refineries. But the albatross that is the Keystone XL pipeline extension remains a pitch battle between industry and environmentalists and the administration.

A vote on approval of the pipeline failed after the election by a single vote.

False start

Just after the election, Sen. Mitch McConnell, R-KY, the presumptive majority leader, said he wouldn’t try to repeal Obamacare or shut down government for leverage.

It was time to work together.

President Obama echoed the sentiment. He wanted the next two years to be as productive as possible.

The cheery glow of bipartisanship lasted not quite 48 hours after Election Day.

At a Nov. 7 White House luncheon, Obama and Republicans sparred about immigration. Obama said he would use his executive authority to enact reforms and on Nov. 20, unveiled executive actions he would take.

Republicans were inflamed. House Majority Leader John Boehner, R-Ohio, said Dec. 2 that Obama was ignoring the will of the people.

As the two parties continue to struggle to work together, U.S. energy politics remains unstable and volatile, George E. Boyajian, vice president, business development, Primus Green Energy, said. Primus produces high-octane gasoline from natural gas.

Boyajian said a unifying theme from the election is voters have seen shale drilling succeed and want more money to stay in the U.S. and in their states.

“Whether or not the feds will get their act together to respond to that in some normal way remains to be seen,” Boyajian said. “I think the big projects will be stalled, but Congress and the regulatory bodies may make some progress on some minor issues.”

George Boyajian, vice president, business development, Primus Green Energy, said projects such as the Keystone pipeline are likely to stall, but minor legislation should find a way through the political scuffles.

Byers said that if Republicans and Democrats can find a balance between environmental concerns and the agenda of growth, progress can be made.

“I think you’re going to have some positive things happen on the energy front in 2015,” she said.

First, the parties need to put 2,300 days behind them.

Stone hinged

Roughly 5,000 years ago, using primitive means, Britain’s Stonehenge was created by moving 50-ton stone monoliths distances of up to 155 miles.

Julian Richards, an archeologist, told the television program "NOVA" in 1998 that work on the largest pieces of the structure, depending on the number of laborers, might have taken as little as three years.

In comparison, TransCanada Corp. filed an application to build the Keystone XL on Sept. 19, 2008—six years ago. Enough time has passed to leisurely walk the length of the 875-mile extension twice.

The Keystone XL is the symbol of strain between the oil and gas industry and Obama’s stated all-of-the-above energy policy. During the past three years, Republicans have tried to expedite the pipeline’s approval nine times.

Resistance has been fierce.

The National Resources Defense Council, among other green groups, says that tar sands oil extracted in Canada should stay in Canada.

Industry organizations argue the fallout will be oil heading to China at a cost of 42,000 U.S. jobs and $2 billion in earnings.

After so much time, Obama may shock everyone and sign legislation as a show of loyalty to some of the more conservative Democrats in thinking ahead to 2016, Byers said.

Though he supports waiting for the Nebraska Supreme Court to rule on a route change, he owes the Democratic Party, Byers said.

The project could be a lightening rod in the presidential election in 2016. “It could haunt the Democrats,” she said.

Boyajian expects the Keystone project to remain mired in politics.

“We think the gridlock is going to remain around the Keystone,” he said.

The ban on crude oil exports is another politically sensitive area. Few Republicans or Democrats have made overt calls to lift it, according to analysis by Wood Mackenzie. But economic stimulus requirements and sanctioned and unsanctioned light condensate exports that are already happening could lead to compromise.

“My personal view is there’s a pretty good chance the crude oil export ban will be lifted,” Boyajian said.

Though numerous LNG export facilities have a head start, having already won regulatory approval, the massive capital investments and logistics seem unwieldy, he said.

“I think you’ve really got a capital formation issue and whether or not there’s the appetite for the risk of multiple plants coming online,” he said.

Oil is a far more easily and cheaply transported global commodity.

“I think you’ll see movement where there is more certainty and where people know what the result of their actions are going to be,” Boyajian said. “And that will be in the more liquid markets.”

Natural gas may be the area where both parties can most easily come together, he said.

“That’s what we expect as a company. There are some real opportunities there,” he said. “We can see some light maybe in how that’s monetized for new technologies. Maybe there will be some tax exemptions for new technologies that are using natural gas and converting them into other products.”

Oil and natural gas production in shale regions across the country supports 1.7 million jobs and $238 billion in annual economic activity, according to America’s Natural Gas Alliance (ANGA).

As a byproduct, manufacturing is projected to add 1 million new jobs by 2025, while air quality has improved dramatically, Frank Macchiarola, ANGA’s executive vice president, said.

But that may change after new EPA regulations were announced in late November.

Cautionary fail

Optimism for shale innovation runs high among oil and gas decision makers. With the EPA, it’s a different story. Potential federal regulations are overwhelmingly their greatest concern, according to Deloitte’s 2014 Oil & Gas Survey released in mid-November.

The impact of the midterm elections in slowing potential federal regulations is still unclear, John England, vice chairman and U.S. Oil & Gas leader for Deloitte LLP, said.

“Republican control of the legislative agenda would appear to amplify the sense of industry optimism,” he said.

Confidence in the 114th Congress is already being tested. On Nov. 25, the EPA released a proposal for stricter ozone standards, setting off industry advocates.

Tim Wigley, Western Energy Alliance president, said the regulations could be the most expensive in the nation’s history.

“One thing is sure: This president and his administration have an agenda and they’re going to pursue it with full force and conviction,” Wigley said.

Ultimately, Republicans and Democrats need to work together and strive for a balance between the shale boom and the environment.

“Really both sides, Republicans and Democrats, are at risk here of just having done nothing,” Byers said. “Somebody has to decide they’re going to be the better person here.”

If Republicans continue to engage in partisan warfare and get nothing done, their 2016 platform is weakened, Byers said. Democrats are in the same position.

Obama will feel the same pull to support his party. His legacy is also tied to how government progresses.

Only a small number of bills have passed his desk. The Pew Research Center reported in July that Congress had enacted 142 laws, the fewest in the past two decades over an equivalent time span.

“He doesn’t want to go down as a very intransigent president who refused to the bitter end to work across the aisle,” Byers said. “That could be one way he could be painted.”

Republicans will also have the advantage of taking on prominent roles on energy-related committees. Sen. Lisa Murkowski, R-Alaska, an outspoken advocate for oil exports, will chair the Senate Committee on Energy and Natural Resources.

“Being from Alaska, she’s very focused on access to public lands for oil and gas exploration,” Byers said. “That’s going to be a priority for her.”

Still, even legislation supported by Republicans and Democrats faces difficulties.

Most lawmakers, for instance, want to continue the research and experimentation tax credit (R&D credit).

In 2011, U.S. businesses reported more than $12 billion in federal and state tax credits for R&D investments. Such credits are increasingly popular among oil and gas companies.

The temporary credit has proven so popular that political leaders, including Obama, want to make it permanent, said Jonathan Forman, principal, R&D tax services, and managing director of the R&D Global Centre of Excellence for BDO.

“Even with complete disagreement, they all wanted to do this,” he said.

Obama supports making the credits permanent, too, as long as the budget pays for them.

Nevertheless, in late November, the White House threatened to veto a tax bill that included the R&D credit.

While the tax credit is often used as a pawn in larger negotiations, Obama’s veto threat was tied to what he saw as a lack of benefits for middle class and poor families.

“If the bill were to be vetoed, there would be negative implications for several energy subsectors that have tax credits waiting to be renewed,” said John Freeman and Andrew Coleman, analysts, Raymond James.

The tax package ranged from the laudable–a $13.35 billion wind production tax credit–to the laughable: tax credits for racehorses and millions for motorsports entertainment complexes.

Lost in the shuffle were tax credits for biodiesel and coal produced on Native American lands, energy-efficient buildings—and billions of dollars in R&D credits.

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