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Oil Companies Attack Legislation Aimed at Tax Incentives
NY Times
January 13, 2007

WASHINGTON, Jan. 12 — The nation's oil and gas companies, hoping to fend off an attack by Congress on their tax breaks and subsidies, angrily denounced an effort by House Democratic leaders Friday that would repeal billions of dollars worth of incentives and plow the money into renewable energy projects.

"This bill takes capital from U.S. oil and natural gas companies that otherwise would be spent on domestic energy exploration," said Barry Russell, president of the Independent Petroleum Association of America, which represents about 5,000 smaller oil and gas producers. "If the goal is to lessen our dependence on foreign oil, then this bill falls far short."

The giant integrated oil companies, like Chevron and Exxon Mobil, have been more resigned about losing some of their tax breaks but are quietly resisting pressure to renegotiate leases that allow them to pump billions of dollars worth of oil and gas from publicly owned waters without paying royalties to the government.

House Democratic leaders unveiled a bill on Friday that could raise more than $10 billion by repealing half a dozen incentives created in the last several years by the Republican-led Congress or by the Bush administration.

One measure would pressure companies to give up a lucrative loophole that the government inadvertently included in offshore drilling leases for the Gulf of Mexico.

The leases, signed in 1998 and 1999, allow companies drilling in deepwater to escape royalty payments on as much as 87.5 million barrels of oil per lease. Because of an error that officials ignored for six years, the leases omitted a standard escape clause that eliminates the incentives if oil prices climb above $34 a barrel.

Government officials have estimated that the mistake could cost the Treasury $10 billion over the next five years. The Bush administration has asked companies to voluntarily renegotiate, but only five companies have signed new agreements.

The House bill would punish companies that refuse to change their leases by either charging them a "conservation fee" of $9 for each barrel of oil they produce or prohibiting them from acquiring any additional leases in federal waters.

"The American people are owed a fair value for the resources they own," said Representative Nick J. Rahall, Democrat of West Virginia and chairman of the House Natural Resources Committee.

But Mr. Russell, representing the independent petroleum producers, accused the Democrats of breaking valid contracts.

A few oil giants, including BP and Shell, agreed to give up the loopholes. But industry executives said one big player in the gulf, Exxon Mobil, has refused to renegotiate, arguing that it signed the leases in good faith. Chevron, which with several partners recently announced the discovery of a giant oil field that may include two of the flawed leases, said it had submitted a "reasonable" proposal but had not reached an accord.

The House bill would also repeal several other royalty incentives. It would prohibit "royalty relief" for natural gas produced from very deep wells in shallow waters. It would also repeal similar "relief" for companies drilling off the coast of Alaska.

On the tax front, the House bill would repeal a provision passed in 2004 that entitles oil companies to tax credits for "domestic manufacturing" and a $2 billion tax break for "geological and geophysical" expenses in exploration.

Lawmakers in both parties predicted on Friday that the House would easily pass the measure next week. But the industry may have more clout in the Senate, where Democrats have more tenuous control.

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