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Huge Giveaways for Oil Industry

Posted on: Tuesday, 28 March 2006, 18:00 CST

Huge giveaways for oil industry

As Louisiana scrambles to find federal assistance to rebuild the shattered coast that supports most of the offshore drilling in the United States, oil and gas companies are reaping huge windfalls in royalty relief - billions that should be paid into the U.S. Treasury.

The sad story of how a well-intentioned industry incentive program became an industry boondoggle was outlined in The New York Times.

The original royalty relief program established in the late 1990s was intended to give oil companies an incentive to drill deep offshore in the Gulf of Mexico. Oil prices were low, and despite some opposition from Democrats, leading Louisiana legislators in Congress helped the program get started.

The original bill by then-U.S. Sen. J. Bennett Johnston, D-La., was supported by then-U.S. Rep. Robert L. Livingston, R-Metairie. Both wanted to help Louisiana's economy. With oil prices relatively low, the industry had no incentives to drill the hugely expensive wells in deep water. But the bill by Johnston also said royalties would have to be paid when prices were higher.

Over the years, as industry lobbied and even sued the U.S. government, the cost of royalty relief burgeoned. Johnston told the Times that his original bill was too ambiguous, but that the legislative intention to provide incentives in times of low prices was clear. It's also clear that the industry used every Washington influence at its disposal to make the most of the tax break.

Key mistakes were made by the Energy Department in writing regulations and drafting offshore lease agreements, costing the taxpayer billions, the Times said. Just last year, House Republicans took the lead in placing into law an even more favorable piece of language giving companies royalty relief - even as prices for oil and gas have soared to record levels.

The cost of this series of events: The Bush administration expects to waive about $7 billion in royalties over the next five years. That number could quadruple, to more than $28 billion, if a lawsuit filed this past week challenging one of the program's remaining restrictions proves successful.

"It is indefensible to be keeping these companies on the government dole when oil and gas prices are so high," charged U.S. Rep. Ed Markey, D-Mass. "We might as well be giving tax breaks to Donald Trump and Warren Buffet."

Those tycoons were overlooked, but not the oil companies. Republican leaders, who pushed the bill to lock in the incentives already granted for wells still in the pipeline, blocked Markey's efforts to prohibit incentives if crude oil prices rose above $40 a barrel.

Louisiana is not getting the federal aid it needs to preserve and restore its coastline, just as energy companies have their hands out for billions in tax breaks.

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Source: Advocate; Baton Rouge, La.

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