Vote in House Seeks to Erase Oil Windfall - New York Times

Vote in House Seeks to Erase Oil Windfall - New York Times: "May 19, 2006

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.

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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.

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