Two Democratic senators — Dianne Feinstein of California and Bill Nelson of Florida — introduced legislation Monday that would end federal incentives for oil and natural gas producers to drill in the federal Outer Continental Shelf (OCS).

The Feinstein bill, the Deepwater Drilling Royalty Relief Prohibition Act, seeks to repeal Section 345 of the Energy Policy Act of 2005 that mandated royalty relief for Gulf of Mexico drilling in waters exceeding 400 meters, and prohibit the Interior Department secretary from using discretionary authority to provide royalty relief for oil and gas drilling in the offshore.

Five of the largest oil companies — BP plc, Chevron, ConocoPhillips, ExxonMobil and Shell — made a total of $11 billion in profits last year, according to Feinstein. But the three big American oil companies (ExxonMobil, Chevron and ConocoPhillips) paid effective federal tax rates in 2011 of only 13%, 19% and 18%, respectively, she said.

Nelson’s measure, the Oil Spill Tax Fairness Act, would deny tax deductions for oil spill-related expenses, including legal, clean-up and other costs. His bill would prevent a company that causes an oil spill from turning around and writing off the expenses as a tax deduction.

Nelson said his legislation was spurred by the Macondo well blowout that resulted in an explosion aboard the Deepwater Horizon platform in the Gulf of Mexico in 2010, which created one of the largest oil spills in U.S. history (see Daily GPI, April 22, 2010).

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