House committee approves OCS leasing reform bill

June 22, 2006
Two days after it combined the two main offshore oil and gas leasing bills it had received, the US House Resources Committee passed HR 4761 by a 29-9 vote on June 21.

Nick Snow
Washington Correspondent

WASHINGTON, DC, June 22 -- Two days after it combined the two main offshore oil and gas leasing bills it had received, the US House Resources Committee passed HR 4761 by a 29-9 vote on June 21.

The bill, formally designated the Deep Ocean Energy Resources Act, now heads to the House floor. Opponents are likely to criticize its provisions that give coastal states a share of federal oil and gas revenues from the Outer Continental Shelf and provide those states the option of withdrawing from or modifying moratoria.

The revenue-sharing provisions were in an earlier measure developed by Reps. Bobby Jindal (R-La.) and Charlie Melancon (D-La.). The provisions to let coastal states opt out of offshore leasing moratoria were part of a bill cosponsored by Reps. John E. Peterson (R-Pa.) and Neil A. Abercrombie (D-Hi.).

Oil and gas trade associations and governors of four Gulf Coast states applauded the committee's action. But US Minerals Management Service Director Johnnie Burton immediately questioned its OCS revenue sharing provisions.

"Our preliminary and very rough estimates indicate that these provisions, if unchanged, would result in a decline of $69 billion of retained federal royalties over 15 years. This diversion would have significant impacts on the federal debt," she said in a letter to Resources Committee Chairman Richard Pombo (R-Calif.) prior to the bill's markup.

"The states' share would rise by $86 billion, for a total of $91 billion," Burton said.

An MMS spokeswoman told OGJ that the director questioned only the revenue-sharing provisions in the bill. MMS is continuing to analyze HR 4761's other provisions, she said.

'Respected partnership'
Louisiana Gov. Kathleen Babineaux Blanco disputed Burton's federal revenue impact estimates. In a letter to Pombo, she also took exception to the term "retained federal royalties," which she said "undermines the respected partnership that must be maintained between producing states and our federal partner."

Blanco said that she has acted to stop federal OCS Lease Sale 200 for the central Gulf of Mexico, scheduled for August. The governor also said she has "publicly committed to continue to block future lease sales until the federal government makes a serious commitment to reinvest in the coast of Louisiana."

Melancon said, "Offshore drilling has created good-paying jobs for many Louisianans, but the state has also had to shoulder the burdens that result from supporting this industry, including an eroding coastline and the cost of infrastructure like ports and highways."

The state would put its portion of federal OCS oil and gas royalties to good use since it is passing a constitutional amendment requiring that its share be dedicated to building a comprehensive hurricane protection and coastal restoration system, he added.

Jindal noted that HR 4761 provides the best chance Louisiana has ever had to receive the share of federal OCS oil and gas royalties that it deserves.

The House committee's action also drew applause from one of the state's two US senators. Democrat Mary L. Landrieu said that it marked "important step for Louisiana and all Gulf Coast states as we continue our joint effort to secure our fair share of oil and gas revenues."

She withheld her vote on Mar. 8 when the Senate Energy and Natural Resources Committee passed S. 2253, a more modest OCS leasing reform bill that would direct the US Interior secretary to begin leasing of the so-called Sale 181 area in the eastern Gulf of Mexico, because the bill did not address revenue sharing with coastal states.

In negotiation
A committee spokeswoman told OGJ that negotiations are continuing over both revenue-sharing and concerns raised by Florida's two US senators that S. 2253 would bring oil and gas activity too close to that state's coastline.

"While the House and Senate Energy Committee approaches to opening up new energy production while securing a fair share for coastal states may differ, our delegation will continue to work together to smooth over those differences and press the administration [of President George W. Bush] for its support," Landrieu said.

HR 4761's provisions aimed at giving coastal states a way to modify offshore leasing moratoria also generated reactions. Peterson said that the bill "doesn't go as far as I would have liked. We're still leaving far too much energy on the table. But this bill represents a pretty good compromise, given the position from which we started last year."

He said that the current bill would lift congressional moratoria and presidential withdrawals on the OCS 100 miles from shore, lift bans 50-100 miles from shore unless a state acted to prevent it before June 2009, and keep bans in place inside 50 miles from shore unless states requested otherwise.

Peterson said that the bill also gives DOI the authority, for the first time, to issue gas-only leases.

But Rep. Edward J. Markey (D-Mass.), another Resources Committee member, said that the provisions roll back 25-year-old coastal protections.

Markey said: "A pro-drilling governor could veto a pro-environment legislative bill and then drilling could begin. The bill would seek to bribe states to allow drilling by offering them a large portion of the drilling revenue. The cynicism of the Republican plan is that they have cut Medicaid and other funding to the states, and then here attempt to bribe these cash-strapped states into allowing drilling off their coasts."

Associations respond
Oil and gas trade associations welcomed the Resource Committee's action. The Independent Petroleum Association of America specifically cited the bill's provision that would lift moratoria 100 miles from shore. But it questioned the need to establish a 100-mile buffer around coastal states or to compel producers to renegotiate deepwater royalty terms from the late 1990s.

"The environmentally safe development of urgently needed oil and gas supplies through access to the deep sea is a vital component of an effective national energy strategy," IPAA Pres. Barry Russell said.

National Petrochemical & Refiners Association Pres. Bob Slaughter called the committee's action very good news.

"Studies indicate that the OCS could provide the U.S. with 633 tcf of gas¿about 25 years of supply. In order to address the nation's gas supply-demand imbalance, Congress and the Bush administration must act now to provide an increase supply of these resources," he said.

American Gas Association Pres. David N. Parker said that the committee's bipartisan vote "advances legislation that will significantly increase America's access to domestic supplies, which will ultimately lower prices for consumers."

Contact Nick Snow at [email protected].