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View Full Version : Vote in House Seeks to Erase Oil Windfall



SoonerInKCMO
5/19/2006, 09:35 AM
http://www.nytimes.com/2006/05/19/washington/19oil.html?hp&ex=1148097600&en=693f471c0b907568&ei=5094&partner=homepage



WASHINGTON, May 18 — In an attempt to revoke billions of dollars worth of government incentives to oil and gas producers, the House on Thursday approved a measure that would pressure companies to renegotiate more than 1,000 leases for drilling in the Gulf of Mexico.
The measure, approved 252 to 165 over the objections of many Republican leaders, is intended to prevent companies from avoiding at least $7 billion in payments to the government over the next five years for oil and gas they produce in publicly owned waters.




Scores of Republicans, already under fire from voters about gasoline prices, sided with Democrats on the issue. Eighty-five Republicans voted to attach the provision to the Interior Department's annual spending bill. The measure would require adoption by the Senate, which is less reflexively supportive of the energy industry than the House, and will almost certainly provoke intense opposition from oil and gas producers.
In a raucous debate on the House floor before the vote, Democrats argued that energy companies were shortchanging taxpayers at the same time that soaring prices for crude oil and natural gas had pushed industry profits to record highs.

"Oil companies want to play Uncle Sam for Uncle Sucker," said Representative Edward J. Markey, a Massachusetts Democrat who co-sponsored the amendment with Representative Maurice D. Hinchey, Democrat of New York. "Today, we must put an end to these senseless giveaways."

Republican leaders, who had hoped to avoid a vote on the issue, agreed that companies should not be getting lucrative incentives in times of high prices. But they insisted that the government had no right to reopen valid leases that it signed years ago with offshore drillers.

"These leases were valid legal contracts signed between the government and these companies in good faith," said Representative Mike Simpson, Republican of Idaho. "The Congress and the government should keep their word when they sign a contract."

In a separate defeat for energy companies, the House voted 279 to 141 to reject a provision that would lift a 25-year ban on oil drilling in coastal areas outside the western Gulf of Mexico.

Lawmakers also voted 217 to 203 to continue the prohibition on drilling just for natural gas.

The lopsided vote to rescind royalty incentives, which surprised many of the proposal's own sponsors, came three months after The New York Times disclosed that companies drilling in publicly-owned waters of the Gulf of Mexico were set to escape royalties on about $65 billion worth of oil and gas over the next five years.

The windfall stemmed in large part from a major error in about 1,000 leases that the Clinton administration signed with energy companies in 1998 and 1999.

To encourage drilling and exploration in water thousands of feet deep, the government offered to let companies avoid the standard royalties, usually 12 percent or 16 percent of sales, for large quantities of the oil and gas they produced.

But the incentives, which have been expanded in recent years by the Bush administration and by Congress, were supposed to stop as soon as prices for oil climbed above $34 a barrel and prices for natural gas climbed above $4 per thousand cubic feet.

For reasons that are now being investigated, the Interior Department omitted the restriction in 1,000 leases it signed in 1998 and 1999. In addition, the Bush administration offered extra "royalty relief" to companies that drilled very deep wells in very shallow water.

The lost royalties are just beginning to hit the government's bottom line.
The Government Accountability Office, the investigative arm of Congress, estimated in March that the royalty incentives could cost the government $20 billion over the next 25 years.

On top of that, at least one oil company, the Kerr-McGee Corporation, has sued the Bush administration in a test case to expand the "royalty relief" far more. If the Kerr-McGee lawsuit is successful, the G.A.O. estimated, the government could lose a total of $80 billion over the next 25 years.
The amendment approved on Thursday would try to force oil companies to revise their contracts and agree to pay full royalties when energy prices climb above the "threshold levels."

To give the government bargaining power, the bill would also prohibit the Interior Department from awarding any new leases to companies that refuse to revisit their leases.

The industry is itself divided on the issue. Some of the big integrated oil and gas companies, like Exxon Mobil, have already declared that they see no need for incentives in today's environment of high prices.

But many smaller producers are determined to retain their incentives and to fight for even more.

"Forcing renegotiations of contracts would be changing the rules in the middle of the game and would raise serious questions about contract law," said Dan Naatz, vice president for federal resources at the Independent Petroleum Association of America, a trade group that represents independent producers. The Bush administration did not take a position on the House measure, though senior officials have repeatedly said they were powerless to change valid contracts.

It is unclear whether the Senate will go along with the provision. But Democratic lawmakers have already been pushing.

Senator Ron Wyden (http://topics.nytimes.com/top/reference/timestopics/people/w/ron_wyden/index.html?inline=nyt-per), Democrat of Oregon, filibustered for five hours last month in an attempt to attach a similar proposal to major spending bill. Senator Diane Feinstein, Democrat of California, has drafted a bill similar to the House measure.

What effect will this have on contract law?
Why are large, integrated oil & gas companies OK with this while smaller producers are not?

sooner n houston
5/19/2006, 10:04 AM
Gee, wonder what this will do to gas prices? Does anyone belive the oil co's are gonna just eat this loss?