Bush Budget Axes Oil, Gas R&D Funding, Targets Two Tax Breaks

WASHINGTON Feb. 5, 2007 (Dow Jones Newswires)

The Bush administration Monday proposed to ax two federally-funded oil and gas research programs and modify two separate tax breaks for the oil and gas industry in its 2008 budget.

The administration's budget primarily focuses on funding for new renewable energy, biofuel and nuclear programs, and the proposals would, in a small measure, help offset the new spending priorities.

The administration sought to add $1.5 billion in the federal coffers through 2017 by extending the amortization period for companies' geological and geophysical costs from two years to five years, as well as repealing a law that reduced the recovery period for new natural gas distribution lines built before 2011 from 20 years to 15 years.

In an expenditure line item, the administration said it wanted to cancel a mandatory, $50 million a year Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Research created under the Energy Policy Act of 2005. The program was to be funded by revenues from oil and gas leases.

Chairman of the Senate Energy and Natural Resources Committee Sen. Jeff Bingaman, D-N.M., criticized the cut.

"Even though the price of oil and gas are near record highs, we won't be able tap new domestic oil and gas resources without additional R&D," he said.

Bingaman said the key players in the U.S. for natural gas onshore are independent producers, which are usually too small for R&D departments.

"This is a wrongheaded decision that I hope the Congress reverses," the Chairman said in a statement.

Also, under the Department of Energy's Fossil Energy Research and Development line items, the administration indicated a cut in "oil and gas research and development," but didn't offer any details. In 2006, around 65 million was spent on the program, while around 12 million is estimated to be spent.

The Bush administration also said Monday it didn't believe additional royalty relief for oil and gas companies developing on the Outer Continental Shelf was warranted in the current high-oil price environment, according to the chairman of the House Natural Resources Committee, Rep. Nick Rahall, D-W.Va.

The Department of the Interior later confirmed the proposal to repeal the royalty relief provision for deepwater oil and gas production in the Energy Policy Act of 2005. Rahall's office received early copies of the DoI's budget.

The chairman commended the Bush administration for including the proposed repeal.

Although it had yet to become law, the repeal of the deepwater royalty relief incentive was part of the House's H.R. 6 Clean Energy Act of 2007. The Energy Act provision would also repeal the prohibition from federal government charging companies fees when they apply for drilling permits on federal lands.

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