House Democrats have once again targeted oil and gas industry wallets, this time to help pay for energy proposals in the 2008 farm bill (H.R. 2419). Language incorporated into the bill seeks to recoup billions of dollars in royalties being lost on a series of faulty leases in the Gulf of Mexico.
Early Thursday morning, July 26, the House Rules Committee attached that provision and several others to the farm bill. The package cumulatively would raise $6.1 billion in revenue over 10 years according to Congressional Budget Office (CBO) figures released by the Rules Committee.
Congress granted oil companies royalty relief in the late 1990s to spur deepwater production at a time when energy prices were low (Public Law 104-58), but more than 1,000 leases were mistakenly issued in 1998 and 1999 without language requiring companies to resume paying royalties if prices were to rise. In recent years, prices have risen, and government estimates have pegged the loss to the Treasury Department at $10 billion.
The new farm bill language would establish a “conservation of resources fee” on oil companies that are not paying royalties under their current leases. Other provisions would repeal several portions of the 2005 energy law (Public Law 109-58), eliminating certain incentives and royalty relief for oil and gas production in the Gulf and allowing the federal government to collect fees on drilling permits. The new language would also authorize the Interior Department to change oil and gas leases in the National Petroleum Reserve in Alaska.
Lawmakers have inserted language to address the faulty leases in numerous legislative bills since news reports last year said many companies are not paying royalties, despite posting record profits. For example, the fiscal 2008 Interior-Environment spending bill (H.R. 2643) includes a provision to bar companies from bidding on future leases if they do not renegotiate their contracts, although the Senate Appropriations Committee struck similar language from its version of the spending bill (S. 1696).
As previously reported on HAI’s RotorNews, the Senate Finance Committee included language to establish a new excise tax on royalty-free production in the Gulf in a $32 billion energy tax package that it approved on June 19. However, Republicans objected to the deal on the Senate floor, forcing Democrats to pass the underlying energy bill without a tax package on June 21.
Helicopter Association International (HAI) has learned the new revenue provisions are intended to pay for the farm bill’s energy title, which would establish various incentives for biofuels research and development, energy efficiency programs, and renewable-energy projects. The oil and gas industry, many lawmakers in Congress, and the Bush Administration have fought the language at each turn, arguing that the contracts are legally binding and cannot be forcefully amended. Several companies have already voluntarily renegotiated their contracts.