House votes to postpone eastern Gulf of Mexico Lease Sale 181

The US House of Representatives voted 247-164 Thursday to postpone by 4 months a contested eastern Gulf of Mexico lease sale planned for December. It also blocked drilling in national monuments and restricted the conditions under which the Minerals Management Service could take oil or gas royalties in-kind.

Jun 22nd, 2001


Maureen Lorenzetti
OGJ Online

WASHINGTON, DC, June 21 -- The US House of Representatives voted 247-164 Thursday to postpone a contested eastern Gulf of Mexico lease sale until April.

The Minerals Management Service had planned to conduct the sale in December, following nearly 5 years of preparation.

The House also voted to ban drilling in national monuments and limit conditions under which MMS could take federal royalties in-kind.

Reps. Jim Davis, (D-Fla.) and Joe Scarborough, (R-Fla.) offered the Sale 181 amendment to the $18.9 billion Interior Department spending bill for fiscal 2002. The tracts were 100 miles from Florida's shores (OGJ Online, Jan 29, 2001).

A spokesman for the National Ocean Industries Association said, "We are very disappointed by this action. It sends the wrong signal at a time when America needs more domestic energy, not less."

Industry has maintained it has an excellent safety record in the eastern gulf that spans more than 3 decades. Since the 1980s, however, a limited amount of drilling in the area has taken place because of administrative deferrals and annual congressional moratoriums, both stemming from Florida's opposition to drilling off its coasts.

Industry said that this latest action could effectively delay the sale by a year or more, not just the 4 months in the amendment. That's because MMS may have to restart the regulatory clock before a new lease sale can be conducted, and the sale may have to be deferred to the 5-year drilling plan to be announced next year.

In June 1998, President Bill Clinton withdrew from leasing until 2012 all the East Coast, West Coast, and eastern Gulf except for the Lease Sale 181 area. Following extensive discussions with Florida and Alabama, his administration determined that area could be leased under the current MMS 5-year plan (1997-2002).

Three years later, the picture is more complicated. Republican President and former oil man George W. Bush has never vocally supported the sale but never ruled it out either. A White House energy blueprint does not directly support Lease Sale 181 but alludes to it by directing the Interior Secretary to "continue OCS oil and gas leasing and approval of exploration and development plans on predictable schedules."

Industry officials say the White House, led by Vice-Pres. Dick Cheney, aggressively lobbied House Committee on Appropriations Chairman Bill Young (R-Fla.) to allow the sale to proceed under the spending bill. Young kept provisions to postpone the sale out of the bill in committee but was unable to dissuade other members of the Florida delegation from pursuing deferral on the House floor.

Meanwhile, the president's brother, Florida Gov. Jeb Bush (R), is running for reelection. He has voiced opposition to eastern gulf drilling despite MMS concessions regarding environmental concerns.

Industry officials said the Sale 181 vote was not a complete surprise given the controversial nature of the sale. Last spring oil industry supporters on Capitol Hill said they expected the Florida delegation to seek a legislative rider during the appropriations process (OGJ Online, Apr. 3, 2001).

The appropriations bill now goes to the Senate, where it could be further amended. One promising point for industry is the fact that the new chairman of the Democratic-controlled Committee on Appropriations, Robert Byrd (D-W.Va.), has opposed legislative riders and may oppose the Sale 181 provision.

However, industry lobbyists say it is too soon in the process to predict what will be in the bill that goes to President Bush's desk. It is also uncertain whether he would veto the bill if the Senate decides to keep the Sale 181 amendment.

Other provisions
The lease sale was one of several amendments to the Interior bill that could have a negative impact on industry.

The House approved an amendment by Rep. Nick Rahall (D-W.Va). that would bar the White House from allowing new oil and gas drilling within national monuments.

And it agreed to an amendment by Rep. Carolyn Maloney (D-NY) that would limit MMS's ability to accept royalty in-kind oil and gas for production on federal leases, instead of the usual cash payments.

Industry maintains that a year-old MMS royalty rule ties prices to a market benchmark and inflates the prices because industry is required to pay some marketing costs.

Under the amendment, MMS would have to show using RIK could earn the federal government at least the same revenues as under the royalty in-cash rule. Industry and some House Republicans have proposed expanding RIK to all federal leases to reduce pricing disputes between producers and government.

But some Senate Republicans, including Craig Thomas of Wyoming, are unconvinced RIK is the answer. "I'm not sure the government should be in the business of selling oil," he recently said at a press briefing.

MMS said recent RIK pilot programs have been successful and it may expand them on a case-by-case basis. RIK opponents maintain that some of those pilot programs compared RIK to an outdated royalty collection system using company-posted prices that were too low.

Other parts of the Interior appropriations bill were unchanged from the committee version.

The bill would allot $56 million to DOE's fossil energy program for oil research and development, a $26 million increase from the White House's request, and $1 million above the 2001 fiscal year funds. For gas R&D, $40 million is earmarked, $19 million over the White House request but $5 million below last year's spending levels (OGJ Online, June 7, 2001).

Contact Maureen Lorenzetti at maureenl@ogjonline.com

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