House OKs Interior Bill Forcing Renegotiation Of Oil Leases

WASHINGTON Jun 28, 2007 (Dow Jones Newswires)

The House late Wednesday passed an Interior Department budget for 2008 that could negatively impact oil and gas development.

The Interior appropriations bill - which passed by a 272-155 vote - would force re-negotiation of 1998-99 oil and gas leases that omitted royalty price thresholds, delay planned exploration and production in Bristol Bay, Alaska, and slow oil shale development.

The White House has threatened to veto the budget, saying the proposed spending plan is over spending limits and that it's opposed the forced lease re-negotiations.

Under the appropriations bill, companies that refused to re-negotiate the leases wouldn't be eligible for new lease auctions.

The Government Accountability Office estimates around $1 billion in royalties have already been lost as a result of the price thresholds omissions, and could cost tax payers an additional $9 billion in future royalties.

Although six companies - including BP PLC (BP), Royal Dutch Shell (RDSA), ConocoPhillips (COP) and Marathon (MRO) - have agreed to pay royalties on the leases on production from October 2006, they only represent a fraction of the total lease owners.

Around 40 companies representing 80% of the production haven't agreed to re-negotiate the leases, including Exxon Mobil Corp. (XOM), Total SA (TOT), Chevron Corp. (CVX) and Anadarko Petroleum Corp. (APC), according to Interior Department data. Democrats have been seeking royalty payments for all output from the leases.

The Senate Appropriations Committee voted against a similar provision in their Interior budget plan last week.

The bill could also delay oil and gas leasing in Bristol Bay by requiring further environmental impact studies.

The area, scheduled to be opened for lease auction in the Minerals Management Service's five-year lease sale plan, is estimated to hold approximately 23 trillion cubic feet of natural gas reserves, and millions of barrels of oil.

The provision calls for greater federal environmental studies of the impacts of drilling in Bristol Bay, which is in Alaska's North Aleutian Basin. Under the proposal, the MMS, the U.S. Geological Survey, the GAO and several other federal agencies would be required to conduct in-depth analyses of exploration in the basin.

An amendment to the bill approved by the House would also slow Interior's plan for oil shale development. Rep. Mark Udall's, D-Colo., amendment would prohibit federal dollars for preparation of final rules for commercial lease sales.

The department's Bureau of Land Management last August initiated the first steps towards a national oil-shale lease sale, posting a notice inviting public comments for proposed rule-making for oil-shale. Royal Dutch Shell is one of several companies working on new shale extraction technology.

Industry experts estimate more than 1 trillion barrels worth of oil may be extracted from the shales, but companies have yet to develop technology that would make development economically feasible or environmentally sustainable.

The House rejected several proposals that would have increased drilling access on the Outer Continental Shelf in areas currently off limits.

Copyright (c) 2007 Dow Jones & Company, Inc.

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