Feinstein: End deepwater drilling incentives

Sen. Dianne Feinstein (D-Calif.) is floating legislation that would strip a major incentive for deepwater oil-and-gas drilling established in the mid-1990s.

Feinstein wants to end a program that provides oil companies with waivers from federal royalty payments – or “royalty relief” – for deepwater production when energy prices are below certain levels.

Feinstein heads the Appropriations subcommittee that oversees the Interior Department, which regulates offshore drilling. Her bill would prevent the incentive from applying to future leases.

Feinstein cited the BP oil spill as the reason for the legislation.

“The BP spill catastrophe in the Gulf of Mexico proves that offshore drilling in deep waters is extremely risky and that safety, prevention and response technologies are totally insufficient,” she said in a statement Tuesday.

“Yet energy companies have long benefited from federal incentives that encourage drilling at increasingly greater and greater depths. This, to me, makes no sense. I believe that taxpayer-funded incentives should go to the development of clean, renewable energy sources like wind, solar, geothermal and advanced biofuels, rather than the dirty business of deepwater drilling — particularly in these tough budgetary times when every dollar counts.”

Royalty relief was designed to provide an incentive for high-cost deepwater Gulf of Mexico projects at a time when energy prices were low.

Opponents of royalty relief have long called it an unnecessary subsidy, but none of the Democratic efforts to scale back or kill the program in recent years have become law.

Under the program, the waivers are granted unless oil and gas prices exceed certain limits, called “price thresholds.”

However, an appellate court decision in early 2009 found the Interior Department cannot apply the price-based limits on the royalty waivers for leases issued between 1996 and 2000.

In addition, leases issued in 1998 and 1999 lack the price-based ceilings on the royalty waivers, an error that is forecast to cost the federal government billions of dollars in lost royalty revenue.