Bill offers incentive for drilling

By JOHN BALZ

© St. Petersburg Times,
published July 12, 2001

WASHINGTON -- Hoping to spur oil and gas production, House Republicans are pushing legislation that provides energy companies financial incentives to drill in the Gulf of Mexico.

The "Royalty Relief Extension Act of 2001" would give oil and gas companies a refund on the purchase price of leases sold. Instead of cash, however, companies would be allowed to extract additional barrels of oil without paying royalties to the federal government.

Supporters say the bill will increase the number of oil and gas leases sold and maximize the potential amount of energy extracted. Critics contend it would result in tens of millions of dollars in lost federal revenues and increase the potential for an oil spill.

The provision is part of a larger bill submitted Tuesday by chairman of the House Committee on Resources, Rep. James Hansen, R-Utah, that promotes President Bush's energy policy. Because the bill includes hot-button issues, such as opening the Alaskan National Wildlife Refuge for energy exploration, the relief measure is likely to be overlooked.

The proposal applies to all places in the gulf where oil and gas drilling are under way, and in Area 181. Last week Florida Gov. Jeb Bush and the Department of Interior reached an agreement to sell leases in a 1.5-million acre parcel about 285 miles from Tampa Bay and 100 miles from Pensacola.

The size of the royalty is different for various water depths. The reduced Area 181 is deeper than 5,280 feet, and energy companies would be able to extract 12-million barrels of oil for each lease sold. The financial incentives would be in place for two years, during which the National Academy of Sciences would study the effectiveness of future royalty relief.

The Minerals Management Service has tried royalty relief pilot programs in Wyoming, Texas and the Gulf of Mexico. J. Bennett Johnston, a former senator from Louisiana, said the pilot program in the gulf region was more successful than predicted.

Secretary of the Interior Gale Norton said the administration has reservations about offering refunds for drilling in shallow waters, but supports the royalty relief in areas more than 2,640 feet deep. Democrats called the proposal an egregious example of corporate welfare under the guise of giving companies an incentive to drill.

"The oil companies do not need a royalty holiday," said Rep. Nick Rahall, D-W.Va.

In March 1999, a report issued by the inspector general of the Minerals Management Service said the pilot program in the gulf was an "operational success" that cost government coffers 6.5 percent of total revenues. If adopted in the entire drilling area of the gulf, the loss would be $82-million a year.

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