01:03 PM EDT, 08/20/2025 (MT Newswires) -- US oil and natural gas exploration and production companies may see a windfall from recently passed tax legislation that's forecast to boost cash flow to be used for reinvestment or increased capital return to shareholders.

The so-called One Big Beautiful Bill Act that was signed into law in July allows US producers to deduct drilling costs when calculating their corporate alternative minimum tax, resulting in a lower rate, according to RBC Capital Markets. The bill also carries benefits for research and development investments.

The "most significant standout" from second-quarter results for upstream operators is tax savings related to the new bill, RBC analyst Scott Hanold said in a note sent to clients earlier this month.

"There's been a notable range of (free cash flow) impacts from the legislation," particularly for ConocoPhillips ( COP ) and Devon Energy ( DVN ) , he said.

Devon Energy ( DVN ) said earlier this month that tax benefits tied to the OBBBA will boost its cash flow by $300 million in 2025 and by about $1 billion over the next three years. The oil and natural gas exploration and production company's projected 2025 tax rate fell to around 10% from 15%, Chief Financial Officer Jeff Ritenour said on an Aug. 6 earnings call.

"Looking beyond 2025, we expect to no longer be subject to the corporate alternative minimum tax," Ritenour said, according to a FactSet transcript. "As a result, we anticipate our ongoing current tax rate will be significantly lower than previous estimates, ranging between 5% and 10%."

The tax changes strengthen Devon's ability to reinvest in the business and return capital to shareholders. In addition to growing and sustaining its dividend, the company expects to use the projected windfalls in accelerating its debt-reduction plans, he said.

The new law permanently restores 100% bonus depreciation, which allows businesses to reduce their taxable income. The 100% bonus depreciation began phasing out in 2023 under the Tax Cuts and Jobs Act, which would have allowed a 40% rate in 2025 before the provision's planned elimination in 2027.

These tax benefits have boosted Wall Street's free cashflow estimates for upstream operators in 2025 and 2026, Tudor Pickering Holt said in a note on Aug. 11.

More cash on hand suggests a greater likelihood by companies to invest in growth areas and potentially reward its shareholders. Trade association American Petroleum Institute said in July that the legislation supports continued investment in oil and natural gas production.

ConocoPhillips ( COP ) expects a deferred tax benefit of about $500 million this year.

"That's primarily due ... to the bonus depreciation rate going from 40% to 100%," Chief Financial Officer Andy O'Brien said on the company's most recent earnings conference call. "Now, of course, that's going to carry on into 2026, and we'll continue to benefit from that bonus depreciation."

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