Price Threshold Language Stricken from Interior Appropriations Bill

The Senate Appropriations Committee yesterday voted 15-14 to remove a provision from the Interior spending measure that sought to force oil and gas companies to renegotiate offshore leases instituted without price thresholds.

Democratic Sens. Mary Landrieu (La.) and Ben Nelson (Neb.) crossed party lines to support removing the provision from the fiscal 2008 spending package. Sen. Judd Gregg (R-N.H.) broke ranks to oppose the amendment.

Interior Appropriations Subcommittee Chairwoman Dianne Feinstein (D-Calif.) had inserted language that would have prohibited companies that fail to renegotiate offshore leases instituted without price thresholds from bidding on new contracts.

At issue are 1998 and 1999 deep water leases that allow royalty waivers regardless of oil and gas prices. The mistake, if uncorrected, could cost the Treasury an estimated $10 billion in lost royalties. It has already resulted in nearly $1 billion in forgone royalties, according to Minerals Management Service estimates.

Democrats supporting the language in the subcommittee mark cited the billions of dollars in profits the oil companies are making. "We can't say, 'Oh, what the hell, we'll let the oil companies take their share,'" and let taxpayers foot the bill, said Sen. Frank Lautenberg (D-N.J.).

Sen. Pete Domenici (R-N.M.) said the oil company's profits are irrelevant to the debate and focused on the fairness of Congress changing the rules on the contracts.

"We're gonna say to bonafide American companies who bid on these leases, we're going to create a class out of you," Domenici said. "You're a brand new class of leaseholder. You're going to be called leaseholders who aren't allowed to bid because you don't want to pay royalties you don't owe."

Landrieu expressed concern about future leases, especially in the Gulf of Mexico, where Louisiana now shares royalties from offshore production. "It in all likelihood will slow down domestic production at a time we are desperate to increase domestic production," Landrieu said.

The prospect of losing a court case could also hurt the Treasury even more. "I hate that we lost that money, but we did," Landrieu added. "But if we lose the court case we lose $60 billion."

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