Hostility prompts IPAA to urge Congress: ‘Do no harm’

June 12, 2006
US independent oil and gas producers still would like greater access to the Gulf of Mexico Outer Continental Shelf and federal acreage in the Rocky Mountains.

US independent oil and gas producers still would like greater access to the Gulf of Mexico Outer Continental Shelf and federal acreage in the Rocky Mountains. But the mood in Washington, DC, has grown so hostile that they’re spending their time fighting punitive legislative proposals, officials of the Independent Petroleum Association of America said May 23.

“Our main message to Congress is to do no harm,” said IPAA Chairman Mike Linn, president of Linn Energy LLC, Pittsburgh. “We need a healthy industry. A windfall profit tax has the opposite effect. We had it before. It didn’t work. Something else needs to be done.”

Independents producers expected a fight when the fiscal 2007 Department of the Interior (DOI) appropriations bill reached the House floor May 18 with an amendment by Rep. John E. Peterson (R-Pa.) removing natural gas from offshore leasing moratoriums. The amendment itself was removed by a 217-203 vote.

But House adoption of another DOI appropriations amendment by a 252-165 vote clearly caught IPAA’s attention. The proposal by Rep. Maurice Hinchey (D-NY) is designed to pressure producers with deepwater royalty relief free of price thresholds due to a US Minerals Management Service clerical error to negotiate new terms.

“There’s obviously a lot of frustration,” said Lee O. Fuller, IPAA’s vice-president for government affairs, during the May 23 briefing.

Hinchey introduced his amendment after learning that price thresholds were left out of federal contracts negotiated in 1998 and 1999 under the Deepwater Royalty Relief Act. Production is beginning from many of the roughly 1,000 leases affected by the oversight, he said.

While the amendment doesn’t require producers holding such leases to rework their contracts, it would bar them from receiving future federal leases if they failed to do so, Hinchey said following its adoption.

“The issue in the Hinchey amendment was that the MMS wrote the contracts poorly. Producers simply signed what they received,” Fuller said.

Investment decisions

Linn pointed out that producers don’t arrive with a battery of lawyers to renegotiate terms when they receive federal leases. “Investment decisions were made on the basis of what was in those forms in 1998 and 1999. To retroactively renegotiate them would be unfair to shareholders,” he said.

Fuller was pessimistic about prospects for getting the provision removed when the DOI appropriations bill reaches the Senate. “It’s an emotional issue,” he said. Meanwhile, said Linn, IPAA is working at the local level in coastal states and communities to convince business and political leaders that oil and gas can be produced offshore without great environmental risk.

“We’re trying to work at the grassroots, meeting with newspapers’ editorial boards and trying to educate people. It’s a long-term effort, but it’s necessary,” he said.

Continued resistance to offshore oil and gas activity by most House members was apparent not only in removal of the Peterson amendment from the DOI appropriations bill but also in the defeat in a 141-279 vote of an amendment by Rep. Ted Poe (R-Tex.) to remove congressionally imposed offshore drilling moratoriums entirely.

Poe pledged to continue his efforts. “There is absolutely no good reason why we cannot expand current offshore drilling in Texas, Louisiana, and Alabama to the coasts of Florida, California, and the eastern seaboard,” he said.

“Tourism is no more important in those states than it is in ours, and it is time that everyone pitch in and make our domestic energy policy a priority,” Poe maintained.

Peterson ‘encouraged’

Following removal of his amendment on May 18, Peterson said, “I believe genuinely that once all the facts are put in plain view of the American people, this Congress will decide to do what’s right for the nation’s economy.”

Peterson and other federal lawmakers are limiting their moratorium-removal efforts to natural gas because they believe it has a more benign environmental image than crude oil.

Asked whether a producer could produce gas exclusively from a well that found oil as well, Linn said, “It is possible to case through an oil formation and produce only the gas below. There are technologies to do this.”

Producers face a different problem in the Rockies, where drilling opponents often sue under the National Environmental Policy Act after drilling permits are issued while other areas remain off-limits, according to IPAA.

Linn said more year-round leases should be issued in the region because modern drilling and development technology makes a much smaller environmental footprint.

“Some wells take 3 months to drill. Some animals’ mating season can take one of those months.

“If you’re only able to get a 3-month permit, you realistically can’t drill the well,” he said.

He and Fuller said that US Bureau of Land Management is working hard to issue drilling permits more promptly in the Rockies, but activity continues to be delayed by litigation.

“We have to get the permit process under way so we have enough to fully use the rigs,” Fuller said.

“Many have multiyear contracts now and have to leave the area if they’re not working. We are increasing the number of rigs at work on a consistent basis.”