Senate Energy Panel to Revisit OCS Issue

Even with the new Congress unlikely to further weaken bans on offshore drilling, the Senate Energy and Natural Resources Committee takes a look this week at offshore oil and gas resources -- in part to satisfy a commitment to the panel's ranking Republican.

A top Interior Department official, two oil company executives, a Sierra Club lobbyist and others will address the panel Thursday.

Last year Congress approved legislation sponsored by Sen. Pete Domenici (R-N.M.) -- then the panel's chairman and now its ranking member -- that expands Gulf of Mexico leasing by roughly 8 million acres. The law, which President Bush signed Dec. 20, provides access to an estimated 1.26 billion barrels of oil and 5.8 trillion cubic feet of natural gas.

Domenici, who requested this week's scheduled hearing, said last year that he hoped the bill was a first step toward further expansions of outer continental shelf access. Overlapping congressional and presidential leasing bans currently restrict offshore areas in the lower 48 states outside the gulf.

The federal Minerals Management Service estimates that undiscovered fields on the entire OCS may contain 86 billion barrels of oil and 420 trillion cubic feet of gas. Oil companies, fossil fuel-reliant industries and pro-drilling lawmakers have long argued federal leasing policy is far too restrictive, claiming current restrictions fail to recognize advancements in industry safety and environmental protection.

But environmentalists caution against "industrializing" the coasts and say the risk of spills remains. They say policy should instead shift toward faster development of fossil fuel alternatives, auto efficiency and other steps.

President Bush this month lifted oil and gas leasing bans covering Alaska's Bristol Bay, but further expansions beyond last year's leasing bill and this step would face tough odds for at least the next two years. Opening new areas for leasing outside of Alaska would require congressional action.

Marnie Funk, a spokeswoman for Domenici, said he wants to look further at the next steps in developing OCS resources following last year's bill. She said Domenici has not decided whether to introduce new legislation. "We are not going into this with any preconceived plans or expectations," she said Friday.

Key Interior official to appear

While the hearing will focus on OCS resources, it could also give lawmakers another chance to probe troubled Interior Department oil and gas royalty programs. The witnesses include Stephen Allred, Interior's assistant secretary for land and minerals management.

Allred has become Interior's point person for describing and defending the agency's allegedly slow response to Clinton administration errors in late 1990s deep water gulf leases. Leases issued in 1998 and 1999 lack clauses that end royalty waivers, called "royalty relief", when oil and gas prices reach certain limits. The mistake, left uncorrected, could cost the government an estimated $10 billion in lost royalties.

House legislation that passed last week would seek to correct the problem by denying new gulf leases to companies that do not agree to price thresholds or other new fees. Allred has warned this could prompt litigation that delayed future gulf leasing and production and says Congress should provide longer terms for gulf leases as an incentive for companies to renegotiate the 1998 and 1999 contracts.

Interior is also under scrutiny for several other royalty-related issues beyond problems with the royalty relief program. An Interior inspector general report late last year said Interior's Minerals Management Service is not adequately ensuring companies fully pay oil and gas royalties they owe. The report said MMS does too little to verify company-reported data and also cited a decline in audits in recent years.

Several MMS auditors are suing oil companies to recover what they allege are underpayment of royalties. The auditors claim their superiors at MMS blocked them from recovering the full payments.

Kerry, Hinchey push industry tax break repeals

A day after the House passed legislation repealing oil industry tax breaks and royalty incentives, two Democrats revealed plans to go for much more. Sen. John Kerry (D-Mass.) and Rep. Maurice Hinchey (D-N.Y.) on Friday reintroduced their "Energy Fairness for America Act," arguing the bill would roll back over $25 billion in industry tax and royalty incentives.

The bill contains several components of legislation the House approved Thursday that would raise an estimated $14 billion over 10 years, including repeal of several royalty incentives in the Energy Policy Act of 2005. But the Kerry-Hinchey plan goes further. Its various provisions include raising several billion dollars with another attempt to deny large integrated oil companies the benefits of the LIFO -- or "last-in, first-out" -- inventory accounting method.

Other changes in the broad measure include ending deductions for "intangible" drilling and development costs, and ending enhanced oil recovery credits and the percentage depletion allowance for oil and gas wells.

It also would repeal several Energy Policy Act tax provisions that the House bill left untouched. This includes provisions on treatment of electric transmission property and natural gas gathering lines, expensing of refining equipment and others. Elsewhere it seeks to raise billions more by altering tax treatment of income from oil and gas projects in other countries.

The two lawmakers said they would seek ways to pass the measure as a stand-alone bill or as an amendment to a larger bill. Hinchey called last week's House bill a "great first step" in touting the measure he and Kerry introduced.

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