The U.S. Senate has rejected 65-34 an amendment that would have granted operators royalty relief for deepwater Gulf of Mexico production.
At the same time, the Congressional Budget Office reported the amendment would have little budgetary effect but also would do little to increase offshore oil and gas production.
Sen. Bennett Johnston (D-La.) offered the deepwater royalty relief measure as an amendment to the Safe Drinking Water Act, which later passed 95-3. The Senate approved another amendment to boost the Environmental Protection Agency to cabinet level.
Johnston is expected to try again to get the royalty relief measure passed. Several senators have placed "holds" on the bill to prevent it from being considered on the Senate floor, but Johnston can offer it as an amendment to other legislation.
DEEPWATER ISSUE
Johnston's measure would have suspended federal royalties on production for leases in 260 in or more of water until companies recover their capital costs. The Interior secretary would grant royalty relief only when wells would not otherwise be drilled.
Johnston argued the government would not lose revenues because the government can't collect royalty on fields that are not developed.
He said, "There is actually a gain to the federal government because if you get an otherwise noneconomic well drilled it is going to produce income taxes and eventually royalties once the capital costs are recovered."
Sen. Howard Metzenbaum (D-Ohio) disagreed.
"This is a plain, simple giveaway of the Treasury dollars," he said. "It is nothing more than a subsidy."
Metzenbaum threatened to filibuster the entire bill if the Senate considers a Johnston deepwater amendment to another bill.
LITTLE BUDGET EFFECT
CBO said the amendment would not harm the budget in most cases, but "a temporary reduction in royalties for deepwater producers of oil and gas would probably have little direct impact on the nation's production of oil and gas or on employment in related industries."
It explained a royalty holiday would be equal to raising oil or gas prices about 14% for operators but issuing temporary waivers in an environment in which oil and gas price movements from year to year are often in the range of 10-20% is likely to have little discernible effect on production levels.
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
