US Lawmakers Preparing to Draft New Offshore Drilling Laws

WASHINGTON (Dow Jones Newswires), Feb. 5, 2009

Federal lawmakers are gearing up to legislate a new offshore drilling plan that could restrict development in major areas of the Outer Continental Shelf, but allow some acreage previously closed to access to be opened for exploration.

House Natural Resources Committee Chairman Nick Rahall, D-W.Va., on Wednesday announced a series of hearings on offshore drilling that will explore the appetite for drilling off the nation's coasts.

Republicans and oil industry officials are concerned that the new plans Congress and new Interior Secretary Ken Salazar plan to draft will ultimately prohibit exploration in areas that show the best prospects, however.

Despite vowing to reshape the country's energy economy to move away from fossil fuels and towards renewable and low-carbon energy, Democrats late last year let a two-decade-old moratorium on offshore drilling on large swaths of the Outer Continental Shelf expire late last year as constituents hounded elected officials about $4 a gallon gasoline.

Secretary Salazar said he was going to work with lawmakers on the Hill to re-write the five-year plan outlined by the outgoing Administration that would have allowed drilling in the previously banned acreage off the East and West coasts, as well as Alaska.

With polls still showing strong support for drilling, Salazar and Congress will need to tread a fine political line on offshore drilling policy, even with oil prices dropping from a $147 a barrel last July to around $40 recently and a larger majority in both chambers.

"We're now in a more reasoned atmosphere," than last summer, Rahall said in an interview with the Wall Street Journal. Rahall and other lawmakers say there's been little traction on Capitol Hill for a full reinstatement of the ban, despite strong calls from many environmental groups to prohibit drilling through legislation. "I don't think it would pass through Congress," the chairman said.

People close to the matter say the House is preparing a comprehensive new energy bill for a March or April vote that's likely to include drilling provisions.

Currently, drilling three to nine miles off the Atlantic and Pacific coasts could legally go ahead because of the moratorium expiration, but only if the Interior Department were allow it in its new development plan. Congress, however, could reinstate parts of the ban or change the requirements for drilling and royalty provisions.

In September of last year, the House passed an energy bill sponsored by Rahall that would have created a 50-mile drilling buffer off the coast, preventing access to acreage that the oil and natural gas industry says contains some of the best prospects. The Senate failed to take up the bill in the wake of the financial crisis, but with a larger majority, the prospects are better for the Democrats' agenda.

Salazar and Rahall are also promising reform of the royalty structures for the oil and gas industry, which is likely to not only increase the cost of leasing and production on the Outer Continental Shelf, but also may prevent new development.

Besides considering axing royalty relief and hiking rates, lawmakers and the Secretary may leave out measures included in recent lease sale laws that would give the states a share of the revenue.

"Unless you have a royalty-sharing provision, you're not going to get any new activity because there's nothing to encourage states to allow new development," says Brian Kennedy, a spokesman for the Institute for Energy Research, an organization that advocates for increase conventional production.

Senator Jeff Bingaman, D-N.M., the chairman of the Senate Energy and Natural Resources Committee, has said he strongly opposes royalty-sharing provisions.

Even if Congress did open new acreage, without such an incentive "it would be an empty promise," says Kennedy.

Dan Naatz, vice president of Federal Resources at the Independent Petroleum Association of America, said, "We'd like to see that go forward with the five year plan instead of trying to do something that would circumvent that process, such as Interior changing it or through a legislative fix."

The House Natural Resources Committee will kick off the three-hearing series next Wednesday exploring environmental and commercial perspectives and follow with two more at the end of the month with state and industry stake holder input.  

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