Oil Companies Take Hit from Congress

Congress, now under Democratic rule, is planning on establishing a renewable energy and conservation fund with money from oil companies. This is not expected to be the only hit oil companies will take next year now that the Democrats are in charge of Congress.

One issue Congress will want to address is the 1998-99 leases that protect oil companies from paying royalties on oil taken from federal property. There was a government mistake during the writing of these leases and as a result oil companies are saving billions of dollars that would normally be paid as royalties for using federal property. The Interior Department is currently trying to rework the leases, but if unsuccessful Congress might create legislation excluding oil companies from bidding on any future leases.

Another issue both Democrats and Republicans will be addressing is to try and pass a law to keep oil companies from price gouging, which will prove to be beneficial if oil companies attempt to increase oil prices and industry earnings again.

Oil companies are also saving money due to a tax break that was established by Congress to help the manufacturing industry. What this tax break does is reduce the amount of taxes on profits from products that are made in the US. Therefore oil companies have been receiving tax breaks and as a result are saving close to $700 million a year. So far there has not been much opposition from the oil companies, and some executives are even saying they do not need the tax breaks.

President Bush is saying the oil companies do not need financial backing due to current oil prices and industry profits. However, the Bush administration does not want to mess with the inventory tax which would be affected by the new proposal to tax oil companies for any oil that is in storage.

The Interior Department is willing to work with Congress on these issues, but they are worried that barring oil companies from future leases is not the right solution to the royalty issue. They fear that this would result in the federal offshore leasing program shutting down for good, which would highly impact federal revenues.