Investment House Sees Long-Term Industry Advantage if OCS Bill Fails

Long-term prospects for offshore oil-and-gas drilling "actually improve" if the House fails to pass legislation expanding Gulf of Mexico drilling this week, according to a Virgina-based investment firm.

House lawmakers plan to vote this week on Senate-passed legislation that expands available gulf acreage by 8.3 million acres, encompassing part of the Lease Sale 181 area and another tract that is currently under leasing moratoria. It also shares production revenues with Alabama, Louisiana, Mississippi and Texas.

The firm, Friedman, Billings, Ramsey & Co., says the Interior Department's Minerals Management Service plans to offer much of the same acreage in the 181 area next year, anyway. And since royalties from federal waters production are not shared with states, offering the acreage without state money will "keep Senator Mary Landrieu (D-La.) and other [Gulf of Mexico] lawmakers in the drilling fight during the next Congress."

"This could possibly lead to a compromise (if prices are high enough) that adds costal Virginia and Alaska's North Aleutian Basin," the firm says in its analysis. In contrast, it says, passage of the Senate bill would satisfy the gulf lawmakers' quest for offshore royalty money, "making it harder for drilling advocates to build consensus, especially in a Democrat-led Congress."

The Bush administration is mulling whether to lift the executive branch drilling ban for the North Aleutian Basin off the Alaskan coast, which includes Bristol Bay. A swath of the area is provisionally included in MMS's proposed 2007-2012 offshore leasing program.

Coastal Virginia is covered by both executive branch and congressional leasing bans. A tract there is provisionally included in the 2007-2012 plan, subject to removal of restrictions.

If the bill passes, on the other hand, the analysis says, "curb your enthusiasm" given the bill's focus on the Lease Sale 181 area and the creation of a no-drilling buffer extending 125 miles south of the Florida Panhandle that lasts until mid-2022.

The bill, S. 3711, is scheduled for a House vote under suspension of rules tomorrow, so passage will require a two-thirds vote of members present. It may come up later in the week under regular order, congressional aides say. The analysis says the bill will likely fail under suspension but gives it a 75 percent chance of passing under regular order.

Copyright 2006 Greenwire. All Rights Reserved. Visit Greenwire for a free trial.

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