House Dems confirm outlines of oil tax, royalty plan
Alex Kaplun and Ben Geman
E&ENews
January 3, 2007

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House Democratic leaders today offered more details on the shape of a roughly $20 billion plan to roll back oil industry tax and royalty incentives to ultimately steer the funds into alternative energy development.

Incoming House Speaker Nancy Pelosi (D-Calif.) has included the plan in the new Democratic majority's opening 100-hour legislative showcase. The Democratic leadership is planning a Jan. 18 vote on the energy measure.

Incoming House Majority Leader Steny Hoyer (D-Md.) said lawmakers are "still working on the nuances" of the proposal and that it would not be introduced this week. But he confirmed it would roll back two tax incentives. One is the amortization of oil and gas exploration costs, which he said would raise $5 billion over 10 years.

The second tax incentive on the chopping block is the oil and gas industry's eligibility for a deduction on income from domestic manufacturing, which was contained in 2004 tax legislation. This will also raise $5 billion, he said.

The plan also aims to correct problems with the federal program that allows royalty waivers for deep water Gulf of Mexico oil and gas production. Deep water leases issued to dozens of companies in 1998 and 1999 were mistakenly drafted without "price thresholds" that end the royalty incentive when oil prices are high.

The package will seek to correct this oversight, although Hoyer said the plan is still being drafted and did not say what the mechanism for ensuring royalty payments from these leases would be. This will raise an additional $9 billion to $11 billion, he said.

Proposals for addressing the problem to date have included denying new offshore leases to companies that refuse to renegotiate the 1998-1999 contracts and placing a new fee on production from these leases if companies do not agree to inclusion of price thresholds.

Democratic leaders say the plan will steer the new revenues toward development of alternative energy sources. However, the package will not lay out specific programs that the new revenues must fund, Hoyer told reporters.

Rep. George Miller (D-Calif.), a senior member of the House Resources Committee, said in an interview that the royalty relief issues reach far beyond next week's plans. "This thing needs a complete and thorough and exhaustive investigation," he said.

Senior reporter Darren Samuelsohn contributed to this report