Companies drilling for oil and natural gas on federally owned lands and in offshore waters must pay royalties to the government. These royalties fund such federal programs as the Land and Water Conservation Fund and the Historic Preservation Trust Fund while also benefiting oil-producing states and the federal treasury.
In 1995, to encourage domestic oil and gas production, Congress passed a law relieving companies drilling in the deep waters of the Gulf of Mexico from having to pay royalties. The law included a critical safety valve: When oil and natural gas prices rose above a certain amount, royalty relief would end. In 1998 and 1999, the Interior Department mistakenly awarded drilling leases that omitted this price threshold, providing unlimited royalty relief to the same oil companies that are now recording record profits.
During debate on the Interior-Environment Appropriations bill, Representative Maurice Hinchey (D-NY) offered an amendment preventing oil companies that benefit from this unlimited royalty relief from receiving future drilling leases. The amendment was meant to encourage companies to voluntarily renegotiate erroneous leases and accept limits on royalty relief. On May 18, 2006, the House voted 252-165 to approve the Hinchey amendment (House roll call vote 167). YES is the pro-environment vote. On June 29, the Senate Appropriations Committee approved a similar amendment offered by Senators Dianne Feinstein (D-CA) and Judd Gregg (R-NH). At press time, the full Senate had not yet taken up the bill.