Offshore Drilling: Peterson OCS Plan Faces Uphill Struggle to House Floor

A Pennsylvania lawmaker's effort to allow wider offshore natural gas drilling could stumble this week as the issue nears the House floor, but drilling advocates are hopeful his progress to date shows a growing appetite to relax coastal leasing bans.

Last week, the House Appropriations Committee approved Rep. John Peterson's (R-Pa.) offshore drilling amendment to the fiscal year 2007 Interior and Environment spending bill in a surprising 37-25 vote. The spending bill is expected to come before the full House this week, likely Thursday.

The amendment removes the longstanding congressional offshore leasing bans for natural gas, leaving the oil drilling ban in place. The current restrictions cover both coasts and much of the eastern Gulf of Mexico. While the amendment is only a first step toward authorizing more drilling, its success stood in contrast Peterson's similar effort last year, when the provision was defeated on the House floor, 157-262.

But the amendment may face a tough fight to stay alive this week, industry and Capitol Hill sources say. They point out that Peterson supports more offshore leasing than other, less aggressive pieces of legislation, including House Resources Committee Chairman Richard Pombo's (R-Calif.) bid to allow coastal states to "opt-out" of the leasing bans if they wish.

Industry and Hill sources say the House leadership may remove Peterson's language from the bill in the House Rules Committee this week. This would ward off a politically sensitive floor vote on a plan that is ultimately a symbolic step. Current law does not allow natural gas-only leasing, and overlapping executive branch offshore leasing bans will remain in place until 2012.

Even if the plan survives the Rules Committee en route to the floor, several lawmakers have vowed to try and strike it, including Reps. Lois Capps (D-Calif.), Jim Davis (D-Fla.) and Mark Foley (R-Fla.). While Peterson appears to have made progress, industry sources acknowledge it may be difficult to corral the several dozen votes needed to reverse last year's totals on the Peterson plan.

"We have a lot of ground to cover between now and Thursday," an industry lobbyist who works on natural gas issues said Friday.

Yet industry observers also claim the progress is a sign the powerful coalition against wider offshore leasing may have weakened. Elevated natural gas prices have led to aggressive lobbying efforts by chemical companies and other industrial natural gas consumers who say high prices harm competitiveness and drive jobs offshore.

"It is a symbolic vote, but it is an important symbolic vote," said the industry lobbyist.

Similarly, Bill Whitsitt, the head of the Domestic Petroleum Council -- a group that represents large independent oil and gas producers -- said the Appropriations Committee vote reveals a changed landscape. "This signals that the dynamics have shifted rather dramatically," he said, even as he declined to handicap a floor vote.

Environmental groups are pressing for the measure's defeat. "Constructing energy-efficient buildings and manufacturing energy-efficient heating and water heating equipment could save 300 trillion cubic feet (Tcf) of natural gas over 50 years," said a Natural Resources Defense Council statement last week that raises several concerns, including what effect seismic testing might have on whales and dolphins.

Peterson explains amendment's intent

According to a memo from Peterson's staff to other offices that seeks to explain his effort, his offshore language is not meant to represent a complete piece of offshore energy policy legislation. The memo, obtained by E&E Daily, calls it "one step toward unlocking our vast domestic reserves of natural gas." "The Peterson amendment was never advertised as a panacea for OCS reform," the memo states. "Rather, it is a thoughtful first step toward comprehensive OCS reform (properly undertaken by the Resources Committee) which simply demonstrates Congress' desire to finally unlock our domestic energy reserves."

The memo stresses the amendment is not actually an effort to allow drilling three miles from state coasts -- the typical distance from shore where federal waters begins. "Mr. Peterson has NO desire to drill 3 miles off your coast," it states, adding that Peterson supports a buffer zone that gives states control of their coasts.

Indeed, Peterson has over 160 House backers for a plan that would allow natural gas-only leasing within 20 miles of state coasts, in addition to offshore revenue sharing with states that have coastal production.

But that plan is far more sweeping than Pombo's opt-out plans, which would allow states to effectively control leasing decisions within 125 miles of their coasts. Pombo's plan was stripped from House budget reconciliation legislation last year to help eke out a narrow victory for the budget bill. Pombo hopes to revive it as part of new House efforts to move energy legislation this year.

The House leadership hopes to have a multi-part energy package on the floor next month, a spokesman for Majority Leader John Boehner (R-Ohio) said Friday. Pombo aide Brian Kennedy said Friday that Pombo plans to include the OCS provision in the package.

Advocates of wider offshore access have increasingly been pointing to the "opt-out" idea, framing decisions about coastal leasing as a states' rights issue. The Bush administration cites state preferences rather than issuing blanket statements of support for the offshore leasing bans.

ANWR still breathing

The Resources Committee component of the House package could also include Arctic National Wildlife Refuge drilling, Kennedy said. But he cautioned ANWR's inclusion will depend on a number of factors, including whether or not it is moved to the floor as a stand-alone bill and what happens with the fiscal year 2007 budget resolution.

House leaders are still seeking to attract enough support from GOP moderates to pass the budget resolution. It does not include ANWR drilling but the Senate-passed version does, so passage of the House measure would at least keep ANWR open for debate in conference.

Use of the budget is key for ANWR drilling backers because budget bills cannot be filibustered in the Senate. Senate drilling supporters have majority support but lack the 60 votes needed to break a certain filibuster if ANWR is part of regular legislation.

Royalty relief also in play

The spending bill also restricts incentives for deepwater Gulf of Mexico drilling in an effort to prevent producers from avoiding billions of dollars in royalty payments despite high energy prices.

The Appropriations Committee accepted a Democratic amendment last week that calls on the Interior Department to renegotiate scores of leases allowing the incentive -- called "royalty relief" -- that were entered into in 1998 and 1999 without so-called price thresholds. The thresholds allow Interior to end the incentive when energy prices climb above a certain point.

The amendment also includes language that backers say would affect future leases by setting precise price caps establishing when relief would no longer apply.

The trajectory of the amendment -- which was offered by Rep. Maurice Hinchey (D-N.Y.) and mirrors earlier legislation by Rep. Ed Markey (D-Mass.) -- was not clear at press time. Sources tracking the issue say possibilities include the Rules Committee stripping it before the floor debate, and the language being subjected to a point of order on the floor by opponents.

Several House Democrats last week pledged to seek a floor showdown on the issue. Oil and gas industry incentives have become a ripe target for lawmakers in both parties amid the twin phenomena of rising energy prices and massive industry profits. However, there are concerns that the amendment represents an inappropriate effort to reopen signed contracts.

The amendment as offered was even tougher, stating that companies refusing to renegotiate the leases could not obtain future leases, but that provision was stricken in committee. The Democratic supporters said last week they hope to try and reinsert it.

Copyright 2006 E&E Daily. All Rights Reserved. Visit E&E Publishing for a free trial.

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