Obama Omits New Gulf of Mexico Drilling Tax, for Now



WASHINGTON (Dow Jones Newswires), May 7, 2009

The Obama administration left a plan to raise $5 billion through a new excise tax on oil and gas production in the Gulf of Mexico out of its proposed fiscal 2010 budget - but may revive those plans when it provides more detail next week.

The White House is sticking with other plans to eliminate $26 billion in tax breaks for oil and gas companies. Half of that would come from eliminating a tax break for domestic oil and gas production. Companies say the tax break keeps jobs in the U.S.

"Oil and, to a large extent, gas are internationally traded commodities, and their prices are determined on the world market," the White House said in justifying the tax plans. "As a result, domestic oil and gas production subsidies do not significantly reduce the prices that consumers pay for products such as gasoline and home heating oil, resulting primarily in higher returns to the oil industry."

On the Gulf of Mexico, an Obama administration spokesperson cautioned against drawing any conclusions from the details released Thursday, saying that any new tax proposals will be reflected in materials released next week. That potentially leaves the option of new excises taxes on the table.

Democrats have been battling oil companies to get royalty payments from Gulf of Mexico leases signed in the late 1990s, during years when the government, some say accidentally, left price triggers out of contracts. Government auditors say the omission could ultimately shortchange taxpayers by billions of dollars. The U.S. and the companies haven't been able to agree on a deal. The Obama administration's proposed excise tax would have raised money without directly addressing the issue.

The Obama administration also proposed repealing an Energy Department oil research and development program established under a 2005 law. The research and development activities "typically fund development of technologies that can be commercialized quickly, like improved drill motors, which should instead by funded by the companies that benefit from the projects," the White House said.

Solar energy and cellulosic ethanol would be encouraged, with the Energy Department seeking to bring the cost of solar electricity down so it is on par with the costs of other energy by 2015. The Obama administration's Energy Department also said that it aims to make the price of cellulosic ethanol competitive with comparable types of fuel by 2012.

The Obama administration wants to fill the country's strategic petroleum reserve to its capacity of 727 million barrels in early 2010. In 2009, the Energy Department plans to use $563 million in available balances to buy more oil and said it will "continue to fill using federal royalty oil until the existing 727 million barrel capacity is filled in early 2010."
 

Copyright (c) 2009 Dow Jones & Company, Inc.



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