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US: Congressman Starts Inquiry of Windfall to Oil Companies

by Edmund L. AndrewsThe New York Times
February 16th, 2006

A House Republican began a broad investigation on Wednesday of an Interior Department program that is expected to give billions of dollars in benefits over the next five years to companies that pump oil and gas on federal territory.

In a letter on Wednesday to Interior Secretary Gale A. Norton, Representative Richard W. Pombo, the chairman of the House Resources Committee, demanded memos, correspondence and data on the program and on the negotiations over the law that created it in 1996.

Mr. Pombo, a California Republican, said he was beginning the investigation in response to an article published on Tuesday in The New York Times.

That article, drawing on the Interior Department's budget plan for next year, reported that the administration expected to give more than $7 billion worth of "royalty relief" to companies producing oil and gas on federal leases in the Gulf of Mexico.

The article also disclosed that energy companies had begun a courtroom challenge to a crucial restriction on the incentives that would, if successful, reduce their taxes by $35 billion or more by 2012.

In his letter to the Interior Department, Mr. Pombo said the government had not been consistent in carrying out the 10-year-old law, called the Deep Water Royalty Relief Act, and had become embroiled in litigation.

Mr. Pombo made it clear that a primary purpose of his investigation was to attribute much of the problem to decisions by the Clinton administration to sweeten the incentives in 1998 and 1999.

But Jennifer Zuccarelli, a spokeswoman for Mr. Pombo, said the letter to Ms. Norton "is only the beginning of what the chairman believes will be a broad investigation."

At issue is a program that Congress began in 1996, when both Democrats and Republicans wanted to encourage more exploration and production in deep waters of the Gulf of Mexico.

The program allows the Interior Department, which leases tens of millions of acres of publicly owned land and coastal waters, to let companies pump large volumes of oil and gas in deep waters without paying the government a royalty on their sales.

In general, this royalty relief is supposed to stop when oil and gas prices climb above certain trigger points, and prices have been above those points since the end of 2002.

But the Clinton administration waived the price limitations for leases awarded in 1998 and 1999, and those leases are believed to account for most of the $65 billion in royalty-free oil and gas that Interior officials expect over the next five years.

House Republicans are also scrambling to head off a far more serious courtroom challenge by energy companies, led by Kerr-McGee Exploration and Development, to invalidate the price limitations for all leases awarded from 1996 through 2000.

Oil and gas executives plan to argue that Congress wanted royalty relief to be automatic, regardless of how high prices might climb, for all leases awarded between 1996 and 2000.

Congressional Democrats, meanwhile, have begun their own assault on the Interior Department's management of the program.

Representative Carolyn Maloney of New York is asking the Government Accountability Office, an investigative arm of Congress, to analyze the entire program for giving lucrative incentives to oil and gas companies.

In the Senate, 22 lawmakers have asked the accounting office to investigate the possibility that oil and gas companies are understating the true value of the sales they generate from federal lands and waters.



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