House energy bill draws fire from producers, consumers

Nick Snow
Washington Correspondent

WASHINGTON, DC, Aug. 1 -- US House Democratic leaders announced a wide-ranging energy bill on July 30 that incorporates work done by the Energy and Commerce, Natural Resources, and other committees. The bill drew criticism from industry and energy-consumer groups.

HR 3221 was scheduled to emerge from the Rules Committee on Aug. 2 in time for floor debate on Aug. 3. The 786-page bill includes most of the provisions in HR 2337 that many oil and gas producers oppose, although some compromises were achieved.

"It's not the bill I would have written, but it's a compromise," Rep. Gene Green (D-Tex.) told OGJ.

The Consumer Alliance for Energy Security warned that parts of HR 3221, notably Title VII's supply sections, will slow and reduce well completions, delay new production, and raise energy prices.

Roan Plateau language
One controversial provision was inserted at the behest of Rep. John Salazar (D-Colo.), who opposes plans by the US Bureau of Land Management to issue natural gas leases on the Roan Plateau near Grand Junction, Colo. Section 7604 contains "no surface occupancy" language, which would prevent drilling atop the plateau itself, but lets BLM receive bonus and royalty bids and allows lessees to extract minerals, he said. Rep. Mark Udall (D-Colo.) and his staff helped develop the language, Salazar said.

BLM's plans to issue leases on the plateau also led Salazar's brother, Sen. Ken Salazar (D-Colo.), to place a hold on James L. Caswell's nomination as BLM director after the Senate Energy and Natural Resources Committee voted to send the nomination to the floor (OGJ Online, July 31, 2007). Earlier, Rep. Salazar and Udall unsuccessfully tried to insert language to prohibit the leasing into BLM's fiscal 2008 budget.

Udall said the current provision protects the top of the plateau while allowing development of the area's gas resources.

A leading producers' association official in the region disagreed. Marc W. Smith, executive director of the Independent Petroleum Association of Mountain States in Denver, said Section 7604 would ban drilling on what many believe is one of North America's most gas-rich areas, Naval Oil Shale Reserves (NOSRs) 1 and 3. "This amendment will cost the state of Colorado $1 billion in lost revenues and circumvents a nearly decade-long public planning process which allows extremely limited drilling on NOSRs," he said.

Other additional provisions include establishment of an oil shale community impact assistance fund, new requirements to notify recreation and other surface conservation easement holders of proposed leasing, and a requirement for contractors and subcontractors to pay locally prevailing wages.

Still present
Most of the provisions in Titles I and II of HR 2337 are present in Title VII of HR 3221. The US interior secretary would be required to establish onshore drilling permit processing fees for producers to pay, and would collect $1,700/permit temporarily for each permit issued after Oct. 1 until a formal structure was established. The bill also would repeal a provision in the 2005 Energy Policy Act (EPACT) suspending such fees.

Another EPACT provision, which set a 30-day deadline for BLM to process onshore drilling permit applications, was modified further. Resources Committee Chairman Nick J. Rahall (D-W.Va.) originally wanted to remove the deadline entirely but accepted a compromise during HR 2337's markup that extended it to 90 days. That deadline would be 45 days under HR 3221.

Section 7103 retained HR 2337's final language dealing with oil shale and tar sands leasing, which effectively would remove EPACT's deadlines, extend the process to allow additional public comment, and require development of a formal leasing strategy.

Section 7104 would amend EPACT's provision dealing with categorical exclusions by requiring the interior and agriculture secretaries, in managing lands under their jurisdiction, to follow categorical exclusion regulations established by the White House Council on Environmental Quality. Two other sections deal with best management practices and consistency appeals.

HR 2337's provision requiring the US Minerals Management Service to perform at least 550 audits of oil and gas leases annually became Section 7201 in the new bill. Other sections address royalty payment liability, tolling agreements and subpoenas, interest payments, and obligation periods.

HR 3221 retained HR 2337's provisions to expand surface land holders' rights in split-estate situations involving public lands. It also kept the earlier bill's reclamation and additional bonding requirements, its provision dealing with produced water management, and a $1/acre annual due diligence fee collected from lessees for land not being developed.

Within its title dealing with ocean resource management, HR 3221 attempts to establish price thresholds omitted from deepwater leases MMS issued in 1998 and 1999 by barring leaseholders who do not voluntarily renegotiate terms from participating in future federal lease sales. A similar provision was inserted into a farm bill the House passed on July 27. HR 3221 also would repeal deepwater royalty relief for Gulf of Mexico producers.

Ethanol pipelines
The new bill contains at least one other provision affecting oil and gas. In the title dealing with alternative fuel research and development, Section 8311 would require the energy secretary, in coordination with the transportation secretary, to study the feasibility of constructing pipelines dedicated to ethanol. The study would consider barriers to entry, market and throughput risks, and ways to ensure safe transportation and to preserve pipeline integrity. Appropriations of $1 million for fiscal 2008 and 2009 would be authorized.

Oil and gas groups criticized specific aspects of HR 3221. Provisions from the Natural Resources Committee would reverse reforms contained in EPACT that are only now beginning to produce results in the form of additional gas supplies, the American Exploration & Production Council said in an Aug. 1 memorandum to House members.

"In addition, several new restrictions on permitting are proposed that have never been in law," it said. "The bill contains restrictions on leasing in one of the most promising areas of the West, and in the Gulf of Mexico. Higher taxes in the legislation would further reduce energy investment. Those who explore for, and produce, natural gas in the United States—and invest more than their earnings in the process—are frankly baffled as to why policymakers would consider such a reckless course of action."

In a joint letter to House Speaker Nancy Pelosi on Aug. 1, the chief executives of three major natural gas trade associations warned that HR 3221's Title VII would "repeal or eviscerate a number of key measures that were enacted in 2005 to facilitate new natural gas supply and infrastructure development."

Independent Petroleum Association of America Pres. Barry Russell, Natural Gas Supply Association Pres. R. Skip Horvath, and Interstate Natural Gas Association of American Pres. Donald F. Santa said the bill "would impose burdensome requirements, redundant surface owner provisions, and a complex water plan that would be extremely difficult to implement."

More criticism
Energy-consuming industry associations also were critical. The American Chemistry Council (ACC) said HR 3221's natural resources provisions would tie up or remove large amounts of gas that otherwise would have been developed.

"The new antisupply language in Title VII is far worse than the already deeply flawed language that passed out of committee last month," ACC Pres. Jack Gerard said. "House leadership took with the right hand what they tried to give with the left, and the result is that it's worse than where it started."

Other business groups criticized the bill in general. "Congress is not developing energy independence or moving toward more security," said William L. Kovacs, vice-president for environment, technology, and regulatory affairs at the US Chamber of Commerce. "It's assuming we can live without oil and gas while we develop alternatives."

He expects the House to pass HR 3221 but said the bill will have difficulty when it goes to conference with the Senate and might face a filibuster on the Senate floor and a presidential veto.

Kovacs said the bill's biggest problem is that it would duplicate or repeal research and development programs established under EPACT that have not been fully implemented or have been underfunded or ignored.

Contact Nick Snow at nsnow@cox.net.

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