US House introduces major 2007 energy bill

Organizations representing oil and gas producers and consumers are headed into the weekend examining what could be the US House's major energy bill this session.

May 18th, 2007

Nick Snow
Washington Correspondent

WASHINGTON, DC, May 18 -- Organizations representing oil and gas producers and consumers are headed into the weekend examining what could be the US House's major energy bill this session.

On May 16 Natural Resources Committee Chairman Nick J. Rahall (D-WVa.) introduced HR 2337, entitled the Energy Policy Reform and Revitalization Act. The bill's four titles include provisions which potentially would roll back parts of the 2005 Energy Policy Act (EPACT), require federal lessees in onshore split-estate situations to negotiate specific terms with surface landholders before starting operations, and increase federal reclamation bond and produced water handling requirements.

Rahall said as he introduced the bill that it follows hearings by the committee that that established a record "that clearly points to a mandate for change in the way the federal government manages its energy resources." The committee will hold a hearing on the bill on May 23.

A day earlier, the Alliance for Energy and Economic Growth plans to discuss its members' reactions to the bill with reporters. Scheduled participants include American Petroleum Institute Pres. Red Cavaney and American Gas Association Pres. David N. Parker.

Other parts of the bill address energy alternatives, carbon sequestration and other global climate change measures. But the provisions that would affect oil and gas producers most directly are in Titles I and II.

Title I impacts
Title I, which would repeal parts of EPACT, contains provisions that would restore drilling permit processing fees and eliminate the permit processing deadline. It also would replace a requirement to establish energy rights-of-way corridors on federal lands with a study of oil, gas, electricity, and hydrogen transmission congestion and constraints.

It also would slow down oil shale and tar sands leasing and development by removing a deadline that was established by EPACT, changing "final" to "proposed" and "shall make" to "may make" in certain sections, and require the US Interior secretary to develop a comprehensive leasing and development strategy.

Such a strategy would have to include programs to determine optimal methods and timeframes for potential oil shale and tar sands development on federal lands within the Green River basin. It also would have to include plans to conduct "critical environmental and ecological research, high-payoff process improvement research, an assessment of carbon management options, and a large-scale demonstration of carbon dioxide sequestration in the general vicinity of the Piceance basin."

The section also includes a requirement to study alternative approaches to providing federal lands access for early, first-of-a-kind commercial tar sand and oil shale extraction facilities. It also would add a requirement for such leases to fully comply with the National Environmental Policy Act on a site-by-site basis.

Other sections of Title I would repeal EPACT's categorical exclusion provision, establish best management practices requirements for onshore oil and gas lessees, and extend the deadline for decisions on lessee's consistency appeals under the Coastal Zone Management Act to 320 days from 160 days.

Title II impacts
Impacts under Title II include a ban on federal collections of oil royalties in-kind except to fill the US Strategic Petroleum Reserve, a requirement for the US Minerals Management Service to conduct a minimum of 550 oil and gas lease audits each fiscal year, and increases in fines and penalties established under Section 109 of the Federal Oil and Gas Royalty Management Act of 1982.

Section 221 of the title contains requirements for oil and gas producers, drilling contractors, and service companies in dealing with surface landholders when operating on federal onshore subsurface leases. Lessees and operators would be required to limit operations on the surface; accommodate surface landholders as much as possible in the location, use, timing, and type of exploration and drilling operations; and compensate surface landholders for lost income and increased costs, damage to or destruction of personal property including crops and livestock, and failure to reclaim the site.

Lease operators also would be required to notify the surface landholder at least 90 days before beginning activity and reach an agreement. If one cannot be reached, the matter would be referred to a third-party for resolution within 90 days at the operator's expense.

The Interior secretary would permit lease operations begin without such an agreement with the surface landholder if the secretary determines in writing that the operator made a good-faith effort to reach an agreement, the operator submits an operating plan that complies with other federal and state requirements, and the operator posts a bond to ensure that the surface landowner can be fully compensated for any damages.

In such cases, surface landholders would have the right to comment on operating plans, participate in bond level determinations and bond release proceedings, attend an on-site inspection during such determinations and proceedings, and file written objections under the bill.

Reclamation, bonding
Reclamation and bonding requirements would be increased by amending Section 17 of the US Mineral Leasing Act. Surface land would have to be restored to a condition capable of supporting its uses prior to drilling "or higher or better uses of which there is reasonable likelihood." Reclamation efforts would have to occur as simultaneously as possible with drilling operations under a plan which would be submitted along with the operations plan.

Lease operators would be required to file not only an initial reclamation bond, but additional bonds "as succeeding increments of oil and gas drilling and reclamation operations are to be initiated and conducted within the permit area." Bond amounts would consider a site's topography, geology, hydrology, and revegetation potential, and be sufficient to cover reclamation costs in the event of forfeiture.

Section 223 of HR 2337 would establish new produced water requirements. It would require an oil and gas lease operator to replace underground or surface water supplies affected by contamination, diminution, or interruption from drilling. Lease applicants also would have to submit a proposed water management plan to protect surface and underground supplies from contamination or provide alternative sources, protect the rights of present water uses from impacts including any from the discharge of produced water, and identify agreements with other uses for the beneficial uses of produced water.

The next section would require federal onshore oil, gas, and coal lessees to pay a $1/acre due diligence fee on nonproducing acreage. The money would go into a fund to repair damage to federal land and resources from oil and gas development.

The rest of Title II establishes requirements connecting with federal onshore leases for wind power projects. Parts of Title III also address leases for alternative energy projects on the US Outer Continental Shelf.

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