Domestic oil and gas companies are bracing for proposals by the Obama administration and some in Congress that would limit oil and gas production both on land and offshore while increasing taxation and regulation of the industry.
The House Natural Resources Committee has released a draft bill that would raise by 50 percent royalty fees imposed on companies drilling on federal land and cut their 10-year leases in half.
The proposal calls for a “zero-discharge” requirement to be imposed on all new offshore leasing areas and would end royalty relief programs aimed at promoting deepwater exploration and production of natural gas and crude oil.
The American Petroleum Institute called the proposal “one of the most anti-oil-and-gas-development pieces of legislation to be considered by Congress so far this session,” but Democrats see it as a way to bring about safe and environmentally sound domestic oil and gas production while at the same time promoting renewable energy.
The draft legislation was released as the Obama administration mulled what to do about the offshore drilling plan put in place by President George W. Bush before he left office.
Bush acted after Congress lifted a decades-old moratorium on offshore drilling on the East and West coasts. Bush’s plan would have activated drilling leases as early as 2011 off the coast of Virginia, followed by Southern California in 2012 and the North Atlantic coast in 2014, but Interior Secretary Ken Salazar put the plan on hold for 180 days and he is not expected to honor those lease agreements.
Oil prices shrank with the economy but are now back on the rise. Gas prices averaged more than $2.40 per gallon this week, having risen about 25 cents in the last month alone.
In February, Obama introduced a budget plan that would end oil and gas industry tax breaks and impose new taxes on offshore drilling in the Gulf of Mexico, the only place it is currently allowed.
“There are record prices and record profits at the same time, and that doesn’t compute for people,” a top Democratic leadership aide said.
Just four House Democrats come from districts with a stake in oil and gas production, which leaves the industry with very few allies in the majority.
Erik Milito, managing counsel for the American Petroleum Institute, said he feared the oil and gas industry bill would seriously handicap the industry in the U.S.
“When all these little provision in the bill add up, you are creating a disincentive for companies to invest here,” Milito said. “Companies have a decision to make: Do we want to stay in the United States or go overseas, which forces us to buy imports?”
