If the United States is ever to successfully wean itself from foreign oil and promote the development of alternative energy, then giving the oil and gas industry bonus subsidies is probably the wrong idea.
This Washington Post story notes that a major omission in oil and gas leases negotiated in 1998-99 left out a price cap on royalty exemptions, allowing companies to avoid royalty payments as prices have spiked significantly in recent years. The royalty exemption helps promote domestic energy development by giving a subsidy (in the form of a royalty exemption) when energy prices are low. In theory, this helps companies continue exploration and development on U.S.-leased land as prices fall.
So far, the omission of a price cap from the leases has cost the government over $1 billion, with a projected cost of $10 billion over the life of the leases.
So what can be done? One House proposal seeks to force companies to renegotiate leases or pay conservation fees. The Bush administration would give the companies 5 to 10-year, no-bid lease extensions for companies that come to the negotiating table. Two prominent Democratic Senators, Feistein (CA) and Bingaman (NM) are supporting a similar incentive process.
I lead toward the first option, since it aims to "fix the glitch." However, since I'm not a contract lawyer, I have no idea if it would be a bad faith move for the government to force companies to renegotiate the leases, since the contracts were signed as is.
Any lawyers out there want to take a stab?
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