Challenges Await House Offshore Drilling Plan

Legislation that would relax offshore oil and natural gas drilling bans coasted through the House Resources Committee yesterday on a 29-9 count, setting up a likely floor debate on the measure next week and greater hurdles thereafter.

The bill would remove federal leasing bans beyond 100 miles from state shores. Between 50 and 100 miles, states would have to petition to continue leasing bans. Such prohibitions would remain in effect for good within 50 miles of state shores under the bill, unless states ask the federal government for removal of the restrictions.

The measure is a compromise backed by lawmakers who had offered various plans to expand drilling, including Resources Committee Chairman Richard Pombo (R-Calif.) and Reps. John Peterson (R-Pa.), Neil Abercrombie (D-Hawaii) and Bobby Jindal (R-La.). The bill sets up a system to share large amounts of royalties with coastal states, and royalty sharing would occur with states where production takes place. It cleared the committee with the support of 10 Democrats.

Pombo called it a needed step toward boosting domestic production. Current leasing bans essentially cover both coasts, most of the eastern Gulf of Mexico and part of Alaska. "We are dependent on foreign countries for basic natural resources when we are surrounded by those basic resources," he said during yesterday's debate.

Industry and Capitol Hill advocates of the measure yesterday said they believe its chances of clearing the House floor next week are good. House leaders plan to bring several measures to the floor in what is being dubbed "energy week." Brian Kennedy, an aide to Pombo, noted a recent Peterson effort to outright remove all congressional bans on natural gas drilling failed on the House floor by 14 votes last month when lawmakers debated an Interior Department spending bill.

In contrast, the measure passed yesterday, Kennedy said, gives states the power to set policy within 100 miles of their shores. "I would think that would be enough to get exponentially more than 14 votes," he said after the committee vote.

Florida Rep. Adam Putnam (R) has endorsed the plan and proponents of expanded offshore drilling are hopeful he will pull some other state GOP members along with him. Florida lawmakers almost all oppose offshore drilling, but some -- like Putnam -- believe the bill is a way to ensure some continued protection amid increasing pressures to increase domestic offshore production.

Bush admin worried about high cost of bill

But the Bush administration is concerned about the costs of funneling large amounts of offshore royalties to coastal states. The bill provides 75 percent of royalties to states for federal waters drilling within 12 miles of shore, and half beyond that.

Johnnie Burton, the head of the Minerals Management Service, said in a letter to Pombo yesterday that "very rough estimates" show the revenue sharing plan could cause federal royalties to decline by $69 billion over 15 years. "This diversion would have significant impacts on the federal debt," she wrote.

Burton has especially expressed concern about sharing large amounts of revenues with states where offshore production already occurs, like Louisiana. The administration appears more open to revenue sharing from areas that are currently off-limits but could be newly opened to leasing.

But Pombo and other bill supporters counter that expanded leasing and new economic activity will more than make up for losses brought on by revenue sharing. "In the out years, new leasing, economic growth and jobs will help bring us back to even and then far into the black," Kennedy said.

The battle ahead

Environmentalists are pressing hard in opposition to the plan. They have also cited last month's floor votes on drilling during the Interior appropriations debate as evidence of momentum on their side. In addition to rejecting Peterson's effort to remove all congressional bans, the chamber voted 141-279 against a measure that would have removed all bans on oil drilling.

"We saw when Interior appropriations was on the floor that there is a lot of opposition to offshore drilling and a lot of support for maintaining the moratoria," said Tiernan Sittenfeld, legislative director of the League of Conservation Voters.

The measure drew several other attacks yesterday. "Offshore drilling is the slowest, dirtiest, and most expensive way to address our energy demands," said Rep. Lois Capps (D-Calif.).

The measure will face major hurdles even if it passes the House. Senators are facing difficulties advancing a far less ambitious offshore leasing proposal that does not alter current federal restrictions, instead opening only a region of the eastern Gulf of Mexico that is not covered by formal bans.

When asked if the House approach is viable in the Senate, Sen. Mel Martinez (R-Fla.) yesterday said, "I don't think so." He said the measure's guaranteed 50 miles of drilling bans "is just not enough of a buffer." He was critical of the process the bill establishes for states to block drilling between 50 and 100 miles from shore.

The Senate approach backed by Sens. Pete Domenici (R-N.M.) and Jeff Bingaman (D-N.M.) -- the leaders of the Senate Energy Committee -- would open a large swath of the eastern Gulf of Mexico's Lease Sale 181 area. The bill has been held up among talks over what kind of protections to provide Florida, and efforts by Louisiana and other Gulf Coast lawmakers to ensure production revenues are shared with their states.

Industry reaction to House plan

Several industry groups support the House plan. "This strong bipartisan vote advances legislation that will significantly increase America's access to domestic supplies of natural gas, which will ultimately lower prices for consumers," said David Parker, president and CEO of the American Gas Association.

Other key oil industry groups have offered their support as well, albeit with some caveats. They have expressed concerns about language in the measure that would pressure Gulf of Mexico producers to renegotiate late 1990s leases that allow royalty waivers regardless of energy prices. Still, Shell Oil Co., Chevron Corp. and ConocoPhillips said yesterday they would negotiate with Interior on the royalty issue.

The Independent Petroleum Association of America cheered the bill's committee passage but said even more offshore areas should be opened than the bill provides for -- the group spoke against having a "arbitrary 100 mile buffer from the coastal states." It also raised concerns with the lease renegotiation provision.

Other provisions

The bill approved yesterday also establishes a so-called rigs-to-reefs program that allows use of decommissioned offshore oil and gas platforms for fish farming, artificial reefs designed to attract fish, scientific research and other purposes.

Supporters of the rigs-to-reefs idea say the infrastructure can be useful in many ways. Critics call it a boondoggle that lets industry off the hook for the cost of removing platforms, while potentially fostering environmentally harmful large score offshore aquaculture.

Elsewhere, the bill sets forth a royalty regime for oil shale and tar sands development, repealing a section in the recent comprehensive energy bill that gives Interior discretion to create a royalty structure. It says the program put in place must be based on the program used to develop Canada's massive tar sands reserves.

Also, it says royalties can be cut depending on the market price of crude oil, with a 10 percent reduction if the oil price for the previous quarter year drops below $50 per barrel in 2006 dollars, and an 80 percent reduction if the oil price slides below $30 per barrel in 2006 dollars.

Company: Minerals Management Service (MMS) more info
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