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Blizzard of congressional spill responses keeps lobbyists busy

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, July 6 -- Oil and gas lobbyists worked hard to keep up before the Independence Day recess as several congressional committees and subcommittees reviewed bills responding to the Macondo well blowout and oil spill in the Gulf of Mexico.

Two US Senate committees cleared spill liability and offshore regulatory reform measures on June 30 as a House committee studied its own reworked regulatory bill and a subcommittee considered equipment and well design legislation but postponed markup late in the day. Another House committee approved its own spill liability bill on July 1 with two significant amendments that potentially could create problems for onshore as well as offshore operations.

“The inmates are running the asylum,” one lobbyist told OGJ, adding that when House Energy and Commerce Committee Chairman Henry A. Waxman (D-Calif.) and Energy and Environment Subcommittee Chairman Edward J. Markey (D-Mass.) are writing the bills, “their goal is to shut down oil and gas production. They don’t think it can be safe.”

Handling a flurry of troublesome proposals doesn’t grow easier with the realization that the industry brought the problem on itself, the lobbyist added. “This is one where it’s all self-inflicted,” he said, adding, “If we hadn’t had this spill, they wouldn’t be having these discussions.”

Another lobbyist said, “They need to do something. They have to respond some way. But they have to be sensible. If they don’t, they’ll be dealing with higher oil and gas prices and outraged voters later on.”

Bills, amendments
Industry association staff members were watching bills that would raise or eliminate spill liability limits outright, impose new regulations under a reorganized and renamed federal offshore resources management agency, and potentially specify equipment standards and well designs. Then congressional committees began to add amendments to the original bills.

By the time Congress recessed, the Senate Environment and Public Works Committee had passed a bill that would remove spill liability limits completely. The House Transportation and Infrastructure did the same a day later, and added amendments extending the 1920 Jones Act requiring US flagging of vessels in US waters to offshore drilling rigs, and removing onshore independent producers’ exemption from stormwater runoff regulations under the Clean Water Act during wellsite construction.

“It’s not just offshore. They’re coming at us onshore with proposals affecting hydraulic fracturing and other activities,” noted Brian T. Petty, executive vice-president, government affairs, at the International Association of Drilling Contractors. “The net impact would be to shut off everything—offshore and onshore,” he said.

Lee O. Fuller, vice-president, government relations, at the Independent Petroleum Association of America, noted, “It has become a free-for-all for anyone who wants to take a shot at oil and natural gas, whether onshore or offshore. There’s virtually no debate, no fact-finding, and no consideration of the consequences for national production. No one in the leadership seems willing to stand up and warn about the consequences.”

Fuller noted that Democrats from producing states, including US Reps. Harry Teague (NM) and Dan Boren (Okla.), have raised questions, along with US Sen. Mary L. Landrieu (D-La.). Other lobbyists told OGJ that Teague had a colloquy with House Transportation and Infrastructure Committee Chairman James L. Obserstar (D-Minn.) following the July 1 oil spill liability vote and extracted a promise to look more closely at the amendments’ potential consequences. “But unless we see more responsibility by House and Senate leaders, this could be a very bloody summer,” Fuller said.

Advancing agendas
“We’re seeing people who are not interested in having additional production onshore use the tragedy offshore to further their agendas,” added Daniel T. Naatz, IPAA vice-president, federal resources and political affairs. He cited US House Natural Resource Committee Chairman Nick J. Rahall’s (D-Va.) reworked legislation from 2009 on which the committee held a hearing on June 30.

The revised Consolidated Land, Energy, and Aquatic Resources (CLEAR) Act contained provisions that also were in the bill approved June 30 by the Senate Energy and Natural Resources Committee. They included abolishing the US Minerals Management Service and dividing it into three parts, increasing the number of offshore inspectors and improving their training, eliminating the use of categorical exclusions under the National Environmental Policy Act (which was authorized by the 2005 Energy Policy Act [EPACT]), requiring leaseholders to have better well blowout and spill response plans, and extending the 30-day drilling permit review period under EPACT to 90 days.

But Rahall’s CLEAR bill also retained onshore provisions from its earlier version. These would require lessees to use best management practices, repeal categorical exclusions, permanently end the royalty-in-kind program (which US Interior Sec. Ken Salazar already has dismantled), not pay interest when refunding producers’ overpayments, and impose fees on existing leases to support the Land and Water Conservation Fund, Historic Preservation Fund, and the Ocean Resources Conservation and Assistance Fund.

“All of the changes are fairly subtle,” Naatz explained. “New way stations along the way in the planning process would create the possibility of further litigation. As you require examinations of more activities, you could open—if not a ‘Pandora’s box’ of lawsuits—at least more protests which could make it more difficult to work on federal lands.” He noted that while Salazar shut down the RIK program, Rahall’s provision would make it much more difficult to revive if a future Interior secretary decided it was worthwhile after all.

After Stone Energy Corp. Pres. David H. Welch testified before the Senate Energy and Natural Resources Committee on June 24, he told OGJ that he was trying to bring several proposals’ unintended consequences to federal lawmakers’ attention. Naatz said, “We’re seeing problems with nuances too. I keep finding litigation way points. These bills could change the focus of the Outer Continental Shelf Lands Act to a far broader scope. If that happens, I fear we’re going to see offshore what has happened already onshore, which has been litigation after litigation. Although it won’t be a punch in the face, it will make it harder for producers to operate.”

Bad became worse
Independent producers already were concerned that bills before the Senate Environment and Public Works Committee and House Transportation and Infrastructure Committee would raise offshore spill liability limits from $75 million to $1.5 billion, which Naatz said would make it impossible for independent producers to get insurance if they wanted to work offshore. The House committee’s adoption of an amendment repealing independents’ stormwater exemption under NEPA simply made the bill worse, he added.

Committee member Michael A. Arcuri (D-NY) said his amendment was designed to close a loophole similar to those that might have led to the gulf blowout and spill. He also said it followed Reps. Diana DeGette (D-Colo.) and Maurice A. Hinchey’s (D-NY) strategy to federally regulate producers’ onshore water-management operations. “The overarching dynamics here involve rhetoric supposedly targeting BP and other majors but actually affecting independents offshore and onshore,” said Fuller. “This has been a frustrating debate. Everyone has wrapped it around the gulf tragedy, but it’s been used to advance issues that have no bearing on the oil spill.”

Possibly the single most dramatic event during the week was when the House Energy and Commerce Committee’s Environment and Energy Subcommittee, which held a hearing on a proposed blowout preventer and well design bill on June 30, postponed markup of the legislation that had been scheduled for July 1 the night before. Rumored reasons ranged from Rahall’s asserting jurisdiction to subcommittee Democrats and White House officials quietly suggesting that it might have been premature to impose new standards and practices while investigations of the well blowout and spill were still under way.

Lobbyists saw major problems in the bill, starting with its definition of a high-risk well, which they said could have been applied to every well drilled domestically. “They also apparently didn’t listen to the major oil company chief executives when they testified about managing risk through well design,” one industry representative told OGJ. “Another area which could pose problems was the issue of a third-party contractor.”

He noted that Waxman, the full committee’s chairman, and Markey, who chairs the subcommittee, outlined design modification requirements. “In a true wildcat, you could get a kick which makes it necessary to change how you do things,” the lobbyist said. “Drilling some of these deeper horizons with higher temperatures and pressures might be a different world than what you’re getting other places. How blowout preventer and well design regulations are implemented could pose problems.”

Reforms needed
Reforms obviously are needed, the industry representative said. “We need to evaluate procedures to make sure that this never happens again. Maybe it makes sense to divorce [the former US Minerals Management Service’s] revenue side from its safety side, but there are still a lot of good people in the agency,” he said. “The other is to make damn sure that you have at least two barriers between the top of the pipe and the formation, which I don’t think BP did.”

IADC’s Petty called the bill “hideous” and “completely impractical.” He said, “We have a new director of what used to be MMS and organic legislation affecting the agency. Yet this bill essentially dictates what should be this agency’s prerogative. To have a specific mandated design with all these redundancies is to demand something that isn’t even manufactured. All the other esoterica is beyond their ken. It’s all designed maliciously to make it impossible for the industry.”

IPAA’s Fuller said, “That bill would impose a huge series of technical and certification requirements on blowout preventers, cementing and how the well is constructed. While this is discussed in the context of deepwater offshore wells, the bill gives broad unfettered authority to [the US Environmental Protection Agency] to regulate onshore. It would create a new mechanism for the federal government to step into any well it felt like and impose new regulations.”

Lobbyists agreed that since congressional committees were not able to meet the July 4 deadline which House Speaker Nancy Pelosi (D-Calif.) and other congressional leaders opposed for spill-related legislation, the goal now is to pass bills by the August recess and return after Labor Day to resolve differences in conferences before the fall election campaigns’ home stretch in October. They also said that uncertainties created by the Obama administration’s 6-month deepwater drilling moratorium and its ongoing legal challenges, combined with further restrictions resulting from proposed legislation, is already taking its toll on gulf operations.

“Several rigs have sailed, and with them their crews,” one industry representative said. “A majority of many companies’ business in the gulf is in the deepwater, so a lot of their employees are sitting onshore. Many haven’t been laid off, but several could be moved onshore or overseas if it reaches a point that the assets, people, and technology—all of which are valuable—don’t generate revenue for shareholders. I don’t think Salazar and his friends thought that through.”

Petty told OGJ, “People who have made billion dollar bets in the gulf are having to revise their plans for exploration and long-term investments.” Noting that Unocal Corp. received a large settlement in the late 1980s when it couldn’t exploit leases it held in the eastern gulf, he added, “The administration hasn’t considered whether it could be sued for a taking, having sold the leases and then telling the lessee that the lease can’t be exploited. The industry is very aggressively looking to get out of the Gulf of Mexico and go to places where it can work and have its investments pay off.”

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