Democrats to target oil and gas industry in early hours

Before adjourning last month, the Republican-led Congress gave oil and gas companies a parting gift: wider access to oil and gas drilling in the Gulf of Mexico.

What a difference a few weeks and a new majority make.

Among the first items Democrats want to pass are measures that at least some oil and gas companies oppose, such as a measure to repeal certain tax breaks included in a broad energy bill passed in 2005 and a bill to collect royalties on existing drilling leases.

Provisions that could cost the industry even more money, such as one imposing a windfall-profit tax, could follow in the Democratic-led Congress, although some of the harsher measures may strain caucus unity.

“People are very concerned, and concerned on a lot of levels,” said one lobbyist at a major oil company.

Democrats could try as early as this week, though most likely next week, to force companies that signed leases in 1998 and 1999 to renegotiate those contracts so they pay royalties on oil produced in the Gulf when per-barrel prices pass a set threshold.

What appears to be an Interior Department error meant that the threshold typical of such contracts wasn’t included in the leases signed during those two years. The error has left billions of dollars in royalties uncollected by the federal government.

Democrats are also considering repealing a manufacturing tax break that oil and gas companies now are able to claim, as well as other tax measures adopted in the broad energy bill adopted in 2005.

Democrats would use the additional revenues to pay for a new fund for conservation and development of renewable energy sources.

Political party affiliation doesn’t necessarily determine how a member may view an oil and gas issue, so bills the industry opposes will not necessarily pass, particularly with President Bush, a former oil man, still in the White House. But the industry is much closer to Republicans in general than to Democrats, as evidenced in the ratios of PAC contributions.

Shortly after Democrats won majorities in the House and Senate in November, oil and gas lobbyists began preparing anew for the reintroduction of bills originally prompted by record industry profits and soaring gasoline prices. Some Republicans have supported these measures as well.

The industry is in the midst, for example, of a $100 million public relations and grassroots lobbying campaign to boost its sagging public image.

Lobbyists meanwhile have reiterated in Hill meetings their argument that bills that cut too deeply into corporate profits will drive companies to explore and drill in areas outside the United States, thereby raising this country’s dependence on foreign oil.

That argument has bipartisan appeal, particularly in areas of the country where local economies are heavily reliant on the oil and gas industry. Staff aides from Democratic “oil-patch” offices have met leadership aides in the weeks leading up to the holiday break to discuss which measures are acceptable.

Oil and gas-friendly members plan to support the measure to force companies to renegotiate leases, which also has some support among Republican members, and the development of an alternative energy and conservation fund. Several companies have agreed to pay royalties in the future.

The Democrats’ bill would forbid companies from future Gulf production contracts.  

But some members will likely balk at the windfall-profits tax or another measure under consideration that would increase taxes on the industry by changing the accounting rules for oil inventories. Each approach would likely cost the industry billions of dollars.

Lobbyists said aides to the oil-patch members have sought assurances that what they might view as punitive measures are limited to the initial batch of bills contemplated to start the session, which would leave out profit and inventory tax changes.

But these members who support the oil and gas industry have apparently been unable to get that assurance from leadership offices, one lobbyist said.

Oil and gas companies are not united in their views. The major oil companies do not support certain tax breaks in the 2005 energy act, for example, and seem willing to accept the general parameters of the Democrats’ early legislation. This, the companies calculate, will allow them to draw a line in the sand and oppose more financially onerous provisions later.

Drew Hammill, a spokesman for Speaker-designate Nancy Pelosi (D-Calif.), said Democrats have not decided on the exact oil and gas provisions that will be included in their package for the 100-hour legislative push.

But Democrats are intent on setting up the energy reserve for renewable energy and conservation, repealing certain tax breaks, and forcing oil companies to renegotiate the 1998 and 1999 Gulf leases. The total revenues will amount to billions of dollars, Hammill said, although the exact figure depends on which breaks Democrats decide ultimately to target.