Senate Gas Bill Takes Aim at Offshore Leasing Moratorium

Stand-alone natural gas legislation offered in the Senate Wednesday would give coastal states the opportunity to opt out of the federal moratorium on offshore oil and gas leasing and seek to break out the gas-rich Lease 181 in the eastern Gulf of Mexico.

The bipartisan bill, sponsored by Sens. Lamar Alexander (R-TN) and Tim Johnson (D-SD), directs the Department of Interior to draw a state boundary between Alabama and Florida with respect to Lease 181. If the lease area falls within Alabama's waters, then the state can decide to drill for natural gas, but if it's in Florida's waters, the moratorium would stay intact, said Alexander during a press briefing on Capitol Hill Wednesday to unveil the measure.

Under the measure, Florida would have the option to veto leasing off of Alabama's coastline if the activity occurs less than 20 miles offshore, the senator told reporters and industry executives.

Interior would have 270 days after passage of the legislation to determine the boundary between the two states, according to the senator. The portions of Lease 181, which are not located in the state of Florida and are more than 20 miles off of the coast of Alabama and Florida, would be leased by Dec. 31, 2007.

It's estimated that Lease 181 could hold up to 20% of all the natural gas available in the Gulf of Mexico, a staff member for Alexander said. "It's probably the quickest, easiest place we could get a lot more gas," Alexander said.

The cost of the legislation is $6 billion over a five- to six-year period, and would be paid for by revenues from Lease 181, the senator's staffer estimated.

If a coastal state is interested in leasing, the governor would first have to ask the Interior Department to conduct an inventory of gas, or oil and gas, resources off its coast. The department would have 125 days to respond to the request. A boundary would have to be drawn for production purposes. The governor would then send a letter to Interior, President Bush and Congress signaling that he or she wants to start leasing off the state's coast. The moratorium for the entire state, or areas designated by the governor, would be lifted. A neighboring state can object if the leasing activity would occur within 20 miles of its coastline. The rule of thumb is "if you can see it, you can veto it," Alexander said.

"If the area identified is more than 20 miles offshore...then an adjacent state can not say development is inconsistent with their development plan under the Coastal Zone Management Act. However, if development is less than 20 miles offshore, the adjacent state could determine that development is inconsistent with their plan and the secretary of Commerce would have to override the decision," according to the bill.

A producing state would receive 100% of the bonus bids for the first five years after the first lease sale or start of production. A producing state also would receive 12.5% of the qualified production revenues, and a conservation royalty of 12.5% of production revenues would be established.

Alexander believes his legislation is a better alternative than the proposed federal State Enhanced Authority for Coastal and Offshore Resources Act of 2005 (SEACOR), which advocates opening up states' coastal waters to natural gas exploration and production (E&P) activities, and giving states a greater share of the leasing revenues. "My bill is simpler and easier for the states" than SEACOR, he said.

Alexander criticized Virginia Gov. Mark Warner's decision last week to veto a bill that supported drilling off of the state's coastline. "If I were the governor of Virginia, I'd do it in a minute," he noted.

Although the measure is a stand-alone natural gas bill now, Alexander acknowledged that it could become part of the comprehensive energy bill. He noted that Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee, and the full Senate would make that decision.

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