US House Democrats introduced legislation on Jan. 12 to repeal a pair of oil and gas tax incentives and put pressure on holders of Gulf of Mexico deepwater leases issued in 1998 and 1999 without price thresholds to renegotiate terms.
The legislation, HR 6, would end oil and gas companies’ qualification for a manufacturers’ tax credit, which was enacted in 2004, according to cosponsors Charles B. Rangel (D-NY), chairman of the Ways and Means Committee, and Nick J. Rahall (D-W.Va.), chairman of the Natural Resources Committee.
It also would slightly reduce tax benefits enacted as part of the 2005 Energy Policy Act (EPACT) for geological and geophysical costs for “very large, integrated oil companies,” they said in a joint statement. The money would be reinvested in renewable energy, Rangel and Rahall said.
The bill would change the geological and geophysical cost amortization period back to 7 years from 5 years. Within the EPACT, it would repeal Section 344, relating to incentives for gas from deep wells in the shallow Gulf of Mexico; Section 345, relating to royalty relief from deepwater production in the gulf; and Subsection (i) of Section 365, relating to the prohibition on drilling permit application cost-recovery fees.
“These tax breaks came at a time of record profit for the big oil corporations and were so large that even the Bush administration called them excessive. In order to reduce our dependency on foreign oil, we need to stop lining the pockets of oil corporations and rewarding our enemies in the Middle East,” Rangel said.
The bill also contains language aimed at pressuring holders of deepwater Gulf of Mexico leases issued in 1998 and 1999 without price thresholds. The leaseholders would either be barred from bidding for future federal offshore leases or pay a “conservation of resources fee” if they did not renegotiate new terms, including price thresholds with the US Minerals Management Service.
Fee specifics
The US secretary of the interior would be required to establish within 60 days of enactment conservation fees of $9/bbl for oil and $1.25/MMbtu for gas. These would apply to production after Oct. 1, 2006, on any federal lease in years when the average of daily closing prices on the New York Mercantile Exchange was more than $34.73/bbl for oil and $4.34/MMbtu for gas in 2005 dollars.
For nonproducing leases, the fee would be $2.75/acre/year in 2005 dollars.
HR 6 would place money collected under the renegotiated terms, from the new fees and from the repealed tax incentives into a “Strategic Energy and Renewables Reserve” from which funding would be available “1. To accelerate the use of clean domestic renewable resources and alternative fuels, 2. To promote the utilization of energy-efficient products and practices and conservation, and 3. To increase research and development of clean renewable energy and efficiency technologies.”
“This carefully crafted legislation we are introducing today will address the broken royalties system that has plagued the [DOI] and put these payments right back where they belong-in the federal treasury,” Rahall said.
Oil and gas trade association leaders immediately criticized the bill.
“If the goal is to lessen our dependence on foreign oil, then this bill falls far short. The American oil and natural gas industry is our most precious and primary defense against increased oil imports. This is a time to encourage American investment in energy projects here at home, not discourage it. This bill takes capital from US oil and natural gas companies that otherwise would be spent on domestic energy exploration,” Independent Petroleum Association of America Pres. Barry Russell said.
In a letter to House Speaker Nancy Pelosi (D-Calif.), National Petrochemical & Refiners Association Vice-Pres. Charles T. Drevna said the bill’s proposed revocation of oil and gas companies’ manufacturers’ tax credit would deny refiners money to invest in infrastructure, particularly to increase capacity.
He said NPRA and its members also are concerned about the possible impact on supplies from changing the G&G amortization period back to 7 from 5 years. “The government’s provision of financial incentives, like the ones discussed above, has produced real benefits for the nation, including the creation of US jobs and enhanced energy security,” Drevna said in his letter to Pelosi.
