The administration of President George W. Bush would consider sharing new offshore oil and gas revenues with coastal states but is concerned that provisions of a bill now in the House of Representatives would cost the government too much money, a Department of the Interior official told the House Resources Committee on June 14.
Johnnie Burton, acting assistant Interior secretary for lands and minerals management, said the department has only recently begun to analyze the bill, HR 4761 drafted by Rep. Bobby Jindal (R-La.), which would create a new revenue-sharing zone 3-12 nautical miles offshore and give states a 50% share of revenues from leases farther out on the Outer Continental Shelf.
But Burton, who also is Minerals Management Service director, said the administration also has expressed concern over the bill’s provisions giving coastal states the right to opt out of congressional leasing moratoriums and limit leasing to natural gas.
“The administration supports opening up additional oil and gas resources on the OCS that are not currently available and could support revenue-sharing. However, we are concerned about this bill because of its excessive short and long-term costs. Accordingly, we are willing to work with this committee to address these questions,” she said.
After the hearing, Jindal called the administration’s willingness to discuss revenue-sharing, “a major change.” But he also contrasted the concern over revenue with the White House’s support for tax cuts.
Resources Committee Chairman Richard Pombo (R-Calif.) made a similar point. “This is the same argument our friends across the aisle make about the costs of cutting taxes,” he told Burton. “The record is clear: If you share revenues and expand leasing, you increase economic growth.”
Right approach?
Burton noted that the administration generally supports the right of coastal states to opt in or out of offshore leasing moratoriums. But while she cited two separate requests for comments on MMS’s new 5-year OCS plan in which 70-75% supported opening more of the OCS to oil and gas leasing, Burton also questioned whether state opt in-opt out provisions in Jindal’s bill took the right approach.
She also questioned provisions in HR 4761 that would require the federal government to repurchase any lease that did not meet the bill’s 40% natural gas requirement. “This arrangement significantly alters the relationship between lessees and the government. It shifts most of the risk to the government,” she said.
Burton also said producer interest in leases restricted to gas is uncertain. “A significant majority of companies have said they would not be. Of course, if they were protected by hold-harmless and buy-back provisions, this might change,” she said.
Rep. John E. Peterson (R-Pa.), who previously introduced his own bill aimed at encouraging more coastal states to consider offshore leasing, told Burton, “I’ve talked to hundreds of drillers who are willing to drill for gas only. I know Big Oil wasn’t happy with my own bill because it had a gas-only provision.”
He also noted that Canada has allowed drilling of wells producing gas only on its side of Lake Erie since 1913 without any problems.
“Once you have discovered the gas field, it’s easy to produce gas only because you know it’s there. The reason I’m cautious about gas only offshore is that we’re talking about frontier areas where we don’t know what’s there,” Burton replied.
Burton also expressed concern over a provision in HR 4761 that would mandate nearly immediate lease sales within the so-called Sale 181 area of the eastern Gulf of Mexico. Producers might not have time to form partnerships or budget for bids, she said.