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Interior Nominee Urged Not to Take Sides in Eastern Gulf Dispute

Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee, warned Interior secretary nominee Idaho Gov. Dirk Kempthorne last Thursday not to side with one coastal state against another in the ongoing, heated dispute over whether to allow greater oil and natural gas leasing in the gas-prone eastern Gulf of Mexico.

"You are going to be charged with getting in the middle" of the feud between the Gulf coastal states and Florida, which contends that additional leasing in the eastern Gulf area known as Lease Sale 181 would foul the state's beaches, Domenici said during the committee's confirmation hearing for Kempthorne. But "you can't take the position as secretary that you are going to side with one state or another." Kempthorne, if approved by the full Senate, would replace former Interior Secretary Gale Norton.

Pressed about offshore issues by Sen. Robert Menendez of New Jersey, Kempthorne declined to make any firm commitments, saying he "would prefer to be further grounded in [the] issues" before commenting on critical matters such as state buffers and the redrawing of offshore boundaries. Like Florida, New Jersey is concerned that expanded offshore drilling would impact its coastline.

"We have to find a way as a people to get around this situation and do both" -- explore for energy and protect the coastal areas, Domenici said. Sen. Mel Martinez (R-FL), a committee member and vocal opponent of stepped-up Lease 181 activity, called it the "Big Bad Area 181," and said he hoped to secure a buffer to protect the Sunshine State's shoreline.

"I don't know that we have to solve all of Florida's problems with [Lease] 181," said Domenici who, along with Sen. Jeff Bingaman (D-NM), has offered legislation to open up more of Lease 181 to producers. "There is no reason in the world why we cannot drill with...modern technology for the natural gas that is under this water and bring it on board and sell it [to] America's companies and American's households... I think it's a simple proposition of giving the coastal states a rather substantial amount of money [drilling revenue] and getting on with [Lease] 181...and drilling."

He specifically said he believes Sen. Mary Landrieu (D-LA) and her home state of Louisiana, which is host to 30% of the nation's oil and natural gas production, "should get a great amount of money now and in the future."

Once confirmed as Interior secretary, "there is no question you must proceed down to these coastal areas," Domenici told Kempthorne. The United States "for better or for worse has made a nest egg out of that area" for the nation's energy prosperity. There is "more natural gas in that area ready for development" than anywhere else in the U.S.

Domenici said the Senate energy panel is expected to vote out Kempthorne's nomination on Wednesday (May 10). Landrieu has placed a hold on his nomination as a bargaining chip to win a greater share of offshore revenues for Louisiana, and Sen. Bill Nelson (D-FL) is considering a hold to obtain assurances against increased leasing in the eastern Gulf. These procedural moves would block the nomination from going to the Senate floor for a vote. It would require 60 votes in the Senate to overcome a filibuster.

On the contentious issue of royalty relief, Sen. Ron Wyden (D-OR) pressed Kempthorne about whether he would follow in the steps of his predecessor by offering so-called "sweeteners" to oil and natural producers. He noted that Norton in 2001 gave added royalty incentives to producers drilling in the shallow waters of the Gulf of Mexico, and then in 2004 she raised the price thresholds for production to become royalty bearing. As a result, some drillers escaped paying royalties in 2005 and will likely avoid royalties this year, Wyden said.

"I would say to you that I believe that leases that go forward need to have the price threshold so that if, in fact, those prices go up then there should not be royalty relief" for producers, Kempthorne responded. He said Interior had made some "unfortunate errors" in the past, referring to the absence of price thresholds in oil and gas leases issued by the federal government in 1998 and 1999, but that the procedure had since been corrected.

Domenici chided Wyden for his question about royalty "sweeteners," saying it was based on unsubstantiated newspaper accounts. "We have to get it [the issue of royalty relief] before us and make a decision [on] what we as a committee think about it...The only truth we have is that it was reported someplace, and you're gathering from that reporting what has occurred."

As for onshore oil and gas activity, Kempthorne assured Sen. Craig Thomas (R-WY) that he would "move as expeditiously as possible" to speed up permitting for energy development in western lands. Given the current energy situation, Sen. Larry Craig (R-ID) said there was a "sense of immediacy" to develop the more than 3 Tcf of natural gas resources in the Overthrust Belt.

"I believe firmly that this nation needs to continue to produce its [domestic] supply," Kempthorne said. But he noted that as Interior secretary he would not be "strictly focused" on conventional energy, but would advocate alternative fuels as well.

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