ANALYSIS-Big Oil braces for Democrats' energy reform plans
Source: Reuters
By Tom Doggett WASHINGTON, Jan 4 (Reuters) - As Democratic lawmakers take control of Congress, U.S. oil companies hope to defeat their efforts to roll back energy tax breaks and install new royalty payback plans that could cost billions of dollars. Going after "Big Oil" is a top priority of the House of Representatives' Democratic leadership, which says oil companies have earned record profits at the expense of U.S. motorists paying high gasoline prices. House Democrats plan to vote Jan. 18 on legislation that aims to reverse portions of a Republican-written 2005 energy law that critics say was akin to corporate welfare. New House Majority Leader Steny Hoyer says Democrats will repeal several energy tax breaks in the law, including one that allows oil companies to speed up writing off some exploration and drilling expenses. He also said the legislation would fix faulty drilling leases issued by the government in 1998 and 1999 that mistakenly allowed energy companies to avoid paying royalties on the oil and gas they find on federal offshore sites in the very deep waters of the Gulf of Mexico. New House Speaker Nancy Pelosi wants to use the money raised from repealing the oil industry tax breaks and the additional oil royalties to fund research for developing alternative energy sources. Pelosi said Democrats will work to create "a new America that declares our energy independence, promotes domestic sources of renewable energy, and combats climate change." The American Petroleum Institute, the main lobbying group for oil and gas companies, says Congress should leave the tax breaks alone, because higher drilling and exploration expenses would reduce the incentive to search for new energy supplies. "How can you argue that raising costs to the industry helps consumers?" asked API chief economist John Felmy. However, U.S. Energy Secretary Sam Bodman has said oil and natural gas prices are high enough to ensure energy companies make a nice profit even without the tax breaks. And the heads of major oil companies testified at a Senate hearing last year that their firms don't need the energy tax relief that Democrats now want to roll back. The API also doubts that a government created fund to develop alternative energy sources would do much good, as lawmakers might send money to pet research projects in their districts. Senate Democrats plan to make energy reform legislation among their first 10 bills introduced. "For too long our country's energy policy has had only one concern -- oil company profits," said Senate Majority Leader Harry Reid. "We've allowed Exxon's bottom line to take priority over families struggling at the gas pump." Like the House, the Senate measure would repeal industry tax breaks and promote alternative energy. The Senate bill would boost federal authority to prevent gasoline price profiteering and cut heat-trapping greenhouse gas emissions. FAULTY LEASES The API says Democrats should not force oil companies to renegotiate the faulty drilling leases signed with the government in the late 1990s, or require the companies to pay the past royalties that would have been due. Felmy said the leases were signed in "good faith," and if the U.S. government reneged on them, governments in other countries where U.S. oil companies do business would feel justified in imposing new terms on their drilling contracts. The API says it should be left up to oil companies to voluntarily agree to renegotiate the U.S. drilling leases. A handful of oil companies, including BP Plc <BP.L> and ConocoPhillips <COP.N>, have already reached new deals with the government to pay royalties on future production from the 1998 and 1999 leases, but not past royalties. Other companies, including Exxon <XOM.N> and Chevron <CVX.N>, have met with government officials but have not agreed to new contract terms. (Additional reporting by Chris Baltimore)
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