US Senate rejects oil industry windfall profit tax

Washington (Platts)--17Nov2005

The US Senate rejected 64-35 a bid by a group of Democrats to penalize
major oil companies by taxing their profits when oil prices are above $40/bbl.

     The amendment, sponsored by Senators Byron Dorgan of North Dakota and
Christopher Dodd of Connecticut, would have required large oil companies to
pay a 50% excise tax on their profits when oil prices are above $40/bbl. 

     The money generated would have been refunded to consumers through an
income tax rebate. Smaller oil companies and those that reinvested profits
into exploration and production or into increasing refining capacity would
have been exempted.

    The Democrats said the windfall profit tax was needed to help consumers
struggling to pay energy costs. But Republicans, and the Bush administration,
said such a tax would discourage drilling, and exacerbate the energy crunch.

     The measure was defeated in a parliamentary vote, which found the
windfall profit issue was not relevant to the bill.

     The Dorgan-Dodd amendment is just one of several energy-related measures
that Democrats are seeking to attach to a $60-bil budget reconciliation bill.
Others include another windfall profit tax, sponsored by Senator Chuck
Schumer of New York, an anti-price gouging measure and a bid by Senator Dianne
Feinstein of California and others to take away a tax provision that allows
oil majors to amortize their exploration and development costs.

     The underlying tax bill includes three other measures aimed at taking
money away from major oil companies.

     One provision repeals the last-in first-out credit method of valuing oil
reserves for 2005, a move that is expected to generate nearly $5-bil for
federal coffers. Oil companies and refiners typically use the LIFO valuation,
which allows them to pay taxes on the oldest oil in storage, during periods of
rising prices.

     Another measure eliminates for major oil companies the provision from the
recently pass energy policy act that allows them to amortize geological and
geophysical expenditures. The proposal, which does not affect independents, is
expected to generate about $1-bil for the government over 10 years. 

     The bill also modifies the manner in which the phase-out of the
non-conventional fuel credit is calculated and repeals the phase-out limit
entirely for coke and coke gas for 2005, 2006 and 2007. The proposal is
expected to raise $151-mil over five years.

				--Cathy Landry, cathy_landry@platts.com

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