WASHINGTON — The oil and gas industry dodged another bullet in the new congressional budget deal, which avoids spiking tax breaks long used by energy companies.
Instead, the deal makes modest cuts to a government ultradeep-water research program and to a policy that lets companies collect interest on royalty overpayments.
The budget agreement lawmakers unveiled late Tuesday also would implement a long-stalled U.S.-Mexico treaty governing oil drilling along the two countries’ maritime boundary in the Gulf.
While industry lobbyists were still analyzing the pact early Wednesday, their initial reaction was positive.
Independent Petroleum Association of America spokeswoman Julia Bell said the group was “encouraged that the budget deal doesn’t jeopardize the industry’s tax provisions.”
“The oil and natural gas industry is a rare bright spot in our economy, and the budget deal recognizes that this part of the tax code is actually working for the country,” Bell added.
Leaders of the House and Senate tax-writing committees are still developing legislation to broadly rewrite the nation’s tax code, likely repealing some deductions used by the oil and gas industry in the process. But industry leaders had worried that the tax breaks also could be in jeopardy as part of any congressional deal to ease automatic spending cuts known as sequestration.
Federal research funding
The final deal, which still must pass the House and Senate, would end the public-private partnership known as the Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Resources Research Program, which was created in 2005 with the goal of honing technology for harnessing energy from frontier areas. The program received $50 million in funding in fiscal 2012 but has repeatedly been targeted for elimination by the Obama administration.
Critics have argued it was no longer necessary to spend government dollars helping the energy industry find ways to extract more resources, given the surge in development of oil and gas in dense rock formations in North Dakota, Texas and other states.
Industry officials who support the program have countered that public-private partnerships and government research helped pave the way for today’s shale drilling boom.
Capping interest payments
The budget agreement also would cap the amount of interest that oil and gas companies can collect on the overpayment of royalties to the federal government. Current policy allows leaseholders to prepay their royalties — instead of paying them on a monthly basis — and collect interest on the extra amount at typically higher-than-market rates.
The budget deal would limit interest that can be paid to lessees on royalty overpayments to up to 110 percent of the amount due.
The agreement also would permanently repeal the federal government’s authority to accept crude for the strategic petroleum reserve as part of a royalty-in-kind deal with oil companies. Such royalty-in-kind programs generally have allowed companies to transfer the actual commodity — rather than write a check — for royalties owed the government, but they have been criticized for their potential for abuse.