WASHINGTON Jan 12, 2007 (Dow Jones Newswires)
Oil and natural gas companies would fall under serious pressure to rework flawed Gulf of Mexico drilling leases if an energy bill crafted by U.S. House Democratic leaders is approved next week.
House Ways and Means Chairman Charles Rangel, D-N.Y., on Thursday introduced the energy bill to deny large energy firms billions of dollars worth of tax and production incentives.
The bill is a priority for the House's new Democratic leaders and will be considered on the House floor next week as part of House Speaker Nancy Pelosi's 100-hour agenda.
The legislative proposal includes provisions that would push energy firms to fix 1998 and 1999 drilling contracts that fail to require companies drilling in the Gulf's submerged federal lands to pay royalties to the federal government.
Lawmakers argue that it's unfair for large oil firms, in the midst of high gasoline prices and announcements of record profits, to escape making payments to the Federal Treasury.
Companies that fail to renegotiate their leases so that they are required to make royalty payments during times of high energy prices would suffer penalties. The fee would amount to at least $9 per barrel for oil produced under the flawed leases and $1.25 per million Btu for natural gas.
The fees would kick in when the average of the daily closing prices for light sweet crude oil on the New York Mercantile Exchange exceed $34.73 per barrel for oil and $4.34 per million Btu for gas.
On non-producing leases, companies would pay a fee of $3.75.
Alternatively, the companies would be barred from signing onto new leases in the Gulf of Mexico.
Additionally, the bill would repeal incentives that were authorized in the Energy Policy Act of 2005 for companies that produce energy in deep waters of the Gulf of Mexico or from deep wells in shallow waters.
"We are rolling back subsidies for big oil to invest in alternative energy and find solutions to our nation's energy problem," Rangel, D-N.Y., said in a statement. "These tax breaks came at a time of record profit for oil corporations and were so large that even the Bush administration called them excessive."
The bill, co-sponsored by Rep. Nick J. Rahall, D-W.Va. chairman of the House Natural Resources Committee, would disqualify oil and gas companies from receiving a reduced corporate tax rate provided in the 2004 tax bill, "The American Jobs Creation Act."
Repealing the tax break would raise between $5 billion to $6 billion in tax revenue over the next decade, a House Democratic aide said.
And Democrats intend to reduce the geological write-off for large energy companies by extending the write-off period to seven years from five years. This would raise about $1 billion in tax revenues over 10 years.
The goal is to use the new revenues for renewable energy and energy efficiency programs.
The House is set to act on the bill next Thursday.
Copyright (c) 2007 Dow Jones & Company, Inc.
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