Senate's Sale 181 bill ignites wider OCS leasing debate

Feb. 20, 2006
Advocates and opponents of federal oil and gas leasing in the Outer Continental Shelf Sale 181 area of the eastern Gulf of Mexico squared off Feb. 16 before the US Senate Energy and Natural Resources Committee.

Nick Snow
Washington Correspondent

WASHINGTON, DC, Feb. 20 -- Advocates and opponents of federal oil and gas leasing in the Outer Continental Shelf Sale 181 area of the eastern Gulf of Mexico squared off Feb. 16 before the US Senate Energy and Natural Resources Committee.

Lawmakers and witnesses discussed S. 2253, which would direct Sec. of the Interior Gale A. Norton to begin the leasing process, with specific restrictions, in the Sale 181 area within a year of its passage.

Florida's two US senators and Gov. Jeb Bush oppose the US Minerals Management Service's 2007-12 draft OCS plan because they believe Sale 181 oil and gas activity would take place too close to the state's gulf coast.

But the discussion soon moved to potential implications for Atlantic coastal states if Sale 181 leasing proceeds with a 100-mile buffer envisioned in both the Senate bill and the MMS 5-year OCS draft. It also included examination of coastal states' sharing of federal offshore oil and gas revenue.

Through it all, the committee's chairman, Sen. Pete V. Domenici (R-NM), pledged to consider all viewpoints and work to reach an effective agreement that would be truly bipartisan—a strategy he used last year in preparing the committee and Senate's version of what eventually became the Energy Policy Act of 2005.

Domenici said that if S. 2253 passes, "It will be the single most significant thing we can do to bring a substantial amount of natural gas to market." He added, "Because it is so certain and so apt to occur, because this production can be brought on within 2 years, it will send a message to the marketplace that we are serious about helping the American people."

The committee's chief minority member, Sen. Jeff Bingaman (D-NM), added, "The amount of the resource we're talking about—6 tcf of natural gas and 1 billion bbl of oil—makes it worth the effort."

Similar timetables
The hearing's main witness, MMS Director Johnnie Burton, said the bill would open more Sale 181 acreage than MMS's 5-year OCS draft. The two proposals are similar otherwise, including their implementation timetables, which would lead to a Fall 2007 lease sale in the Sale 181 area.

"The Sale 181 area is a gas-prone area. Natural gas production offshore represents one of the most environmentally sound options," Burton said.

She told the committee that from the three OCS sales held in the modified Sale 181 area, the MMS awarded 119 leases and collected $355 million in bonus bids. Twenty-six exploration wells have been drilled, with the first discovery announced in 2003 and seven more announced since.

"All were natural gas," Burton said.

She said that in addition to the 2 million acres the MMS 5-year OCS draft proposes to lease in the Sale 181 area, it also envisions offering 775,000 acres east of the area's military mission line subject to approval of the Department of Defense.

All leasing would be subject to the National Environmental Protection Act, Coastal Zone Management Act, and other applicable laws, she emphasized.

Burton said the MMS, as it prepares to issue oil and gas leases in such areas, reaches a memorandum of understanding and consults closely with DOD.

For Sale 181 leases, "there could be other mitigations," Burton said, adding, "Maybe all structures will have to be on the sea floor. Maybe activity would not occur during certain months of the year. We are willing to do what's necessary."

But Sen. Mel Martinez (R-Fla.) reiterated his concern, shared by the state's other US senator, Democrat Bill Nelson, that both S. 2253 and the MMS 5-year OCS draft's Sale 181 provisions would bring offshore oil and gas activity too close to Florida's gulf coast.

"We have an economy that depends on the fertilizer industry, but we also have one that depends more heavily on tourism, particularly the coastal areas," Martinez said.

Floridians' alternative
He said that a bill he and Nelson introduced on Feb. 1 to permanently ban leasing in parts of the Sale 181 area would open 744,000 acres for leasing there and, if DOD approved, 540,000 acres nearby.

The measure also would open 1 million acres farther south, Martinez said. "What it doesn't do is encroach on the State of Florida. We believe that is important," he said.

He criticized proposals driven by oil and gas prices and policies that encourage the use of natural gas to generate electricity.

"This bill today takes care of the moment. The 5-year plan¿also takes care of the moment. Where will Florida be 2 years from now? Our bill establishes permanent lines to assure that there won't be drilling farther north and farther east," Martinez said.

Another committee member, Sen. Robert Menendez (D-NJ), said he was more concerned about the inclusion of Virginia in another part of the MMS 5-year OCS draft.

"Oil spills don't respect boundaries. More important, we've heard that the infrastructure already exists to support leasing in the Sale 181 area. If infrastructure eventually is built in Virginia, how long before the next price spike exerts pressure on Maryland and Delaware to open their offshore areas to drilling?" he said.

Burton said Virginia became part of the 5-year draft so its legislature and state leaders could examine its possible participation in future federal lease sales off its coast. No drilling would be allowed without congressional removal of the moratorium and modification of presidential withdrawals, she noted.

Menendez said, "Based on your own figures, the entire Atlantic coastal shelf would produce about half a year's supply of oil and 1 year's supply of natural gas. That is not worth the economic risks to those coastal states."

Sharing revenues
Sen. Mary L. Landrieu (D-La.), meanwhile, urged other committee members to include a provision for affected Gulf Coast states to share revenues from future federal OCS sales. "I checked just this morning and the total income for the federal treasury from offshore production exceeds $154 billion," she said.

Burton replied, "There are several provisions in federal law that gives the states a fairly big voice on whether production will occur off their coasts. The main statute is the Coastal Zone Management Act."

Landrieu said, "It comes as some concern that we would be considering yet additional drilling off the coasts of Alabama, Louisiana, and Mississippi without considering adequate compensation for these states. This is not simply an economic issue, but a national security issue."

Domenici said he "departed from the status quo" when he put $1 billion in the 2005 energy bill to compensate Louisiana. "That does not mean that I am not willing to work further to make sure coastal states are adequately compensated for energy development off their shores," he said.

Landrieu said, "I appreciate the $1 billion in the 2005 energy bill. It's a start, but more needs to be done."

Burton was followed by a group of witnesses who generally supported leasing in the Sale 181 area. The exception was Michael Gravitz, oceans advocate for the US Public Interest Research Group, who said S. 2253's leasing proposal poses unacceptable environmental risks.

But Timothy Parker, a senior vice-president of Dominion Exploration & Production Inc., who testified on behalf of eight oil and gas trade associations, said additional leasing in the Sale 181 area would be a crucial to US gas production.

"Technology has let us realize a 50% wildcat success rate from the original Sale 181 area—significantly higher than normal," he said. "We expect this to be a gas-prone area, with no potential for crude oil incidents. There has not been a single incident involving a crude oil spill from an offshore platform since the 1980s."

'Toughest tests'
Offshore platforms in the Gulf of Mexico withstood their toughest tests this past summer when Hurricanes Katrina and Rita struck, Parker observed.

"Authorizing exploration and drilling in the Sale 181 is essential," declared Stephen R. Wilson, chairman and chief executive of CF Industries Holdings Inc., who testified on behalf of the Fertilizer Institute.

"If this step is not taken, the fertilizer industry and other businesses will continue to lose jobs to countries where natural gas prices are lower," he warned.

Thomas E. Skaines, chairman and chief executive of Piedmont Natural Gas Co., who testified on behalf of the American Gas Association, said it was crucial for Congress to act swiftly and decisively to increase domestic gas supplies.

"The Lease 181 proposal before you today is not a total solution," he said. "But I would urge you to not listen to people who tell you that 5 bcf of gas is not significant."

The Independent Petroleum Association of America issued a statement supporting S. 2253 but questioning whether a 100-mile buffer from Florida's coast is necessary because activity would be closer to Alabama and Mississippi.

"The Senate should not reduce the size of the Sale 181 area, but open the entire region for exploration and production. Every other state should not be denied access to the valuable energy resources contained in the Sale 181 area in order to placate the imaginary concerns of a vocal minority in the State of Florida," IPAA said.

Contact Nick Snow at [email protected].