Energy plan could free up $14 billion over a decade

The Congressional Budget Office is estimating a House Democratic plan to reduce subsidies for the oil and gas industry and recoup lost royalties on federal leases will net $14 billion over 10 years.

The estimate, detailed in a letter Friday to House Natural Resources Chairman Nick Rahall, D-W.Va., and Ways and Means Chairman Charles Rangel, D-N.Y., is on par with estimates provided by Speaker Nancy Pelosi, D-Calif., and other advocates of the package, which will be on the House floor Thursday. The plan would siphon money generated by the plan into renewable energy and energy efficiency programs.

It aims to alter leases written by the Interior Department in 1998 and 1999 that did not require companies to pay federal royalties if oil and gas prices reached a threshold. It would require about 50 companies to either renegotiate leases that did not include thresholds, or either pay a fee or be banned from receiving future deepwater production leases.

CBO estimated this would result in a net gain of $6.3 billion. The contracts could cost the government $10 billion in lost revenues. Oil and gas companies say this language penalizes them for a mistake made by Interior officials.

"This creates a plethora of questions over the sanctity of federal contracts," said a release from the Independent Petroleum Association of America. The Democratic effort combines GOP language included in last year's House-passed offshore energy bill and a plan by Reps. Edward Markey, D-Mass., and Maurice Hinchey, D-N.Y., that was included in a House-passed fiscal 2007 Interior spending bill. The fee would be $9 per barrel of oil or $1.25 per million BTU of natural gas when the threshold was hit.

CBO estimated a gain of $7.6 billion from language barring oil and gas companies from receiving a reduction in the corporate tax rate on profits from products made domestically from a 2004 manufacturer-incentive law. The measure also would extend the amortization period for major oil and gas companies from five to seven years for geological and geophysical expenditures.

CBO said this would create $104 million in revenue. This incentive was provided in the 2005 energy bill for all oil and gas companies, though the heads of the major companies said it was not necessary. The incentive will remain in place for smaller independent companies.

Democrats say the package is needed to reduce foreign oil dependence and eliminate tax incentives for an oil and gas industry that has reported record profits. Seventy environmental advocates are on Capitol Hill Tuesday lobbying lawmakers to support the measure, while oil and gas companies contend the package would deter domestic production.