NYT: House Panel Urges Reworking of Leases for Oil Drilling in U.S.-Owned Waters

WASHINGTON, May 10 — Amid a growing uproar over lucrative government incentives for oil and gas producers, the House Appropriations Committee approved a bill on Wednesday that would order the Interior Department to renegotiate about 1,000 leases for companies drilling in the Gulf of Mexico.

The bill, an amendment to an appropriation bill for the Interior Department, would require the Bush administration to revisit scores of leases that permit companies to produce billions of dollars worth of oil and gas in publicly owned waters without paying royalties to the government.

The Government Accountability Office, an investigative arm of Congress, estimated in late March that the government could lose as much as $20 billion over the next 25 years, even if oil and gas prices remain at record levels.

Administration budget projections, which assume that oil prices will remain above $50 a barrel for the next five years, indicate that energy companies could avoid at least $7 billion in payments to the government from now to 2011.

The measure, drafted by Representative Maurice D. Hinchey, Democrat of New York, is intended to block the looming loss of revenue by requiring the Interior Department to renegotiate about 1,000 leases, signed in the late 1990’s, that omitted a crucial restriction on the program in times of high prices.

But in a concession to Republican lawmakers that took some teeth out of the measure, Democrats agreed to drop a provision that would have punished oil companies that refused to renegotiate their contracts.

In one sense, the bill is an effort to press oil companies — perhaps with publicity and public criticism as much as legal power — to give up their incentives in times of high energy prices.

At issue is a 10-year-old royalty relief program that is intended to spur deepwater drilling in the Gulf of Mexico. Under the program, deep-water oil and gas drillers are permitted to avoid paying the government royalties — usually 12 percent of their sales — for much of their initial production in the Gulf.

The incentives are supposed to stop if energy prices climb above a certain point — about $34 a barrel for crude oil and $4 per thousand cubic feet of natural gas — and prices have been far above those levels for the last several years.

But the government signed about 1,000 leases in 1998 and 1999 that mistakenly omitted a clause that suspended the royalty relief in times of high energy prices.

The Bush administration and many Republican lawmakers have opposed calls to renegotiate the leases, asserting that the government does not have the power to break a valid contract.

Mr. Hinchey’s bill stops short of ordering the Interior Department to break its contracts. Instead, it instructs the administration to open negotiations with companies that hold the errant leases in the hopes of pressuring them to reopen talks.

In a compromise with the committee’s Republican majority, Democrats dropped a crucial provision that would have greatly increased the government’s bargaining power in any new negotiations. That provision would have prohibited companies that refused to renegotiate their deals from bidding on any additional leases.

“America’s consumers are being tipped upside down and having money shaken out of their pockets,” said Representative Ed Markey, a Democrat from Massachusetts, who worked closely with Mr. Hinchey on the bill.

Erich Pica, domestic policy director for Friends of the Earth, an environmental group, said the bill was “an important first step” but said that Congress should add penalties for companies that refuse to revisit their leases.

The measure is all but certain to provoke heavy opposition from the energy industry, especially the legions of smaller independent oil producers.

Democrats said they fully expected the Republicans on House Rules Committee to try to attack the royalty provision as “nongermane” and strip it from the spending bill before it reaches the House floor.

That is unlikely to end the fight. Aides to Mr. Hinchey said that Democrats would start a loud fight on the House floor, a nationally televised battle over taxpayer generosity to oil companies that many Republican lawmakers want to avoid.

 

 

This entry was posted on Thursday, May 11th, 2006 at 11:39 AM and filed under Articles. Follow comments here with the RSS 2.0 feed. Post a comment or leave a trackback.

One Response to “NYT: House Panel Urges Reworking of Leases for Oil Drilling in U.S.-Owned Waters”

  1. Laptop Repair said:

    Our Trackback……

    […]very few websites that happen to be detailed below, from our point of view are undoubtedly well worth checking out[…]………

Leave a Reply

You must be logged in to post a comment.