Nov. 1 (Bloomberg) -- U.S. Senate Republicans' divisions over a proposal to allow oil drilling in Alaska may derail their plan to cut federal spending by at least $39 billion.

The Senate this week may vote on a package of spending cuts over five years that includes raising $2.4 billion through lease sales to oil companies in Alaska's Arctic National Wildlife Refuge, known as ANWR. The House Budget Committee may vote Nov. 3 on a $50 billion plan that includes a similar provision.

Three Senate Democrats -- Daniel Inouye and Daniel Akaka of Hawaii, and Mary Landrieu of Louisiana -- joined Republicans in March in voting to keep ANWR in a budget measure that passed 51- 49. Senate Democratic Leader Harry Reid said his party's lawmakers now unanimously oppose the budget cuts. To pass the measure, the Republican Senate leadership will have to persuade at least two of the seven Republicans who opposed ANWR in March to vote for the lease sales this time.

``There's no margin for error'' for the Republicans, said James Lucier, a political analyst at Prudential Equity Group LLC in Washington. ``There may be a point at which ANWR is the issue that brings down the entire'' budget, he said. ``It's the kicker.''

The Republican-controlled Congress in April passed a 2006 budget plan that called for $35 billion in savings in government programs. After Hurricane Katrina stuck Aug. 29 and Congress approved $62.3 billion in emergency relief, fiscal conservatives began calling for additional savings.

Senate Cuts

The U.S. budget deficit reached $318.6 billion for the fiscal year that ended Sept. 30, down from a record $412.8 billion in the 2004 fiscal year. The congressional proposals make cuts to Medicaid, the health program for the poor, food stamps and foster-care payments, among other benefit programs.

``Even without ANWR, it will be difficult to pass,'' said Stanley Collender, managing director of Financial Dynamics, a Washington-based business consulting firm. ``You've got spending cuts that a lot of people can't stomach.''

Some of the Republican lawmakers who voted to strip ANWR from the budget in March may oppose the measure again. Senator Mike DeWine of Ohio has said he opposes including the oil- drilling provision in the spending-cuts measure and may oppose the package.

Drilling Ban

Stephen Hourahan, a spokesman for Senator Lincoln Chafee, said the Rhode Island Republican ``has been a major supporter of the ban on drilling in ANWR, and it is one of the considerations he's looking at on this.''

Also opposing the measure in March were Republican Senators Norm Coleman of Minnesota, John McCain of Arizona, Susan Collins and Olympia Snowe of Maine and Gordon Smith of Oregon. They haven't indicated how they will vote on the spending cuts.

The drilling proposal would allow oil companies such as Irving, Texas-based Exxon Mobil Corp. and London-based BP Plc to drill on 1.5 million acres in the 19 million-acre refuge. Preliminary estimates suggest 6.3 billion barrels of oil could be recovered.

Environmentalists who oppose the plan point to the U.S. Department of Energy's estimate that Alaska oil could lower the price of oil by 30 cents to 50 cents a barrel -- the equivalent of about 1 cent per gallon of gasoline at the pump.

``Those who are presenting opening the Arctic as a solution to the world's energy problems are misrepresenting the facts,'' Bill Meadows, president of the Wilderness Society, a Washington- based environmental group, said Monday on a conference call. ``This is really an intense debate going on. In some ways, it's for the soul of the conservation community.''

Clinton Veto

Congress in 1995 approved drilling in the refuge in a budget measure that was vetoed by President Bill Clinton. In 2001, an energy task force chaired by Vice President Dick Cheney recommended drilling in Alaska.

In November 2003, Senator Pete Domenici, a New Mexico Republican, dropped Alaska drilling from a $23.5 billion energy measure after Democrats threatened to block it through a filibuster, a parliamentary procedure that can kill legislation.

``ANWR has been terribly important over time,'' Domenici said last week. ``We want to get it done.''

Prospects for drilling in Alaska improved after the November 2004 congressional election, when four new Republican senators who favor drilling replaced four Democrats who opposed the plan; Republicans hold 55 of the Senate's 100 seats. Putting the drilling provision in the budget bill gives it extra protection from a possible Democratic filibuster: While it takes 60 votes to stop a filibuster, the budget requires only a simple majority.

House Opposition

Some House Republicans also oppose ANWR drilling. In an Aug. 4 letter to Republican Representative Richard Pombo, chairman of the House Resources Committee, 24 House Republicans said opening the refuge in the budget plan would ``further complicate an already difficult situation.''

House Republican leaders couldn't get enough votes last week to formally raise the budget-cut target to $50 billion; instead, they instructed the committees that oversee programs to find more savings.

Rick May, a lobbyist with the Washington law firm of Brownstein, Hyatt and Farber and a former Republican staff director of the House Budget Committee, predicted that a deficit-cutting package would eventually pass. ``There is going to be something that every member is not going to like, but on balance there are bigger issues here,'' May said. ``We do need to get our fiscal house in order.''

To contact the reporter on this story: Jim Efstathiou Jr. in Washington at jefstathiou@bloomberg.net or Catherine Dodget .

Last Updated: November 1, 2005 00:07 EST