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House Panel Votes to Repeal Congressional OCS Moratorium

In a significant victory for the energy industry last Wednesday, the House Appropriations Committee approved by a wide margin an amendment to repeal the 25-year-old congressional moratorium to allow for expanded natural gas exploration and production off the Atlantic and Pacific coasts, as well as in the eastern Gulf of Mexico.

But the industry also suffered a defeat when the committee adopted by voice vote an amendment that would put an end to royalty relief for future oil and natural gas production on federal lands.

The House panel voted 37 to 25 to accept the amendment removing the ban on Outer Continental Shelf (OCS) gas drilling that was offered by Rep. John Peterson (R-PA), a strong proponent of opening up federal protected waters to permit expanded natural gas drilling. His proposal keeps the existing ban on oil drilling in the OCS intact, as well as the existing presidential moratorium that expires in 2012. The House action was greeted by independent producers, chemical producers and consumer energy groups.

Both amendments were attached to a $25.9 billion spending package for Interior, Environment and Related Agencies for fiscal 2007, which the House panel voted out last Wednesday.

This marked the second year that Peterson sought to repeal the congressional drilling ban. He offered a proposal in committee last year, but then withdrew it in the face of stiff opposition. Peterson offered the proposal again on the House floor last May, but it was defeated by 262 to 157. While Peterson has won the battle this year at the committee level, he faces tough battles in the House and Senate. The Interior appropriations bill is expected to come to the House floor this week.

"We congratulate Rep. Peterson for his perseverance and passion in this important effort," said Jack N. Gerard, president and CEO of the American Chemistry Council.

Just prior to the House action, President Bush signaled that he was open to some of the offshore drilling proposals floating around on Capitol Hill provided they do not allow drilling closer than 100 miles to shore. "They're having lots of discussions up there, but my line is, not within 100 miles," Bush said during a nearly hour-long interview with seven Florida newspapers.

Natural gas is the "mother's milk of our industry," said Peterson in proposing his amendment, which would allow natural gas exploration up to 200 miles from shore. Peterson called it "the most important amendment [that] I have ever offered" in public office. "We are the only country in the world that has locked up our Outer Continental Shelf."

Rep. Allen Boyd (D-FL) opposed the amendment, saying expanded drilling activity would interfere with the Navy and Air Force training and testing exercises in the eastern Gulf. Rep. The "military issue [is] a red herring," countered Rep. Don Sherwood (R-PA).

Rep. John Carter (R-TX) agreed. "If our pilots can't fly low and miss a half dozen drilling wells, we need better training for them," he said. "If we don't start getting our act together and getting back in the petroleum business in the United States and drilling where our resources are, we are going to find ourselves up a creek and you can hook a sail up to your car and use wind power if the wind's blowing towards work."

Rep. Anne Northrup (R-KY) urged the panel not to hold OCS resources hostage any longer. "We are sitting on a committee today that could make a difference" in domestic supply and prices. "It is time for us to resolve this."

Rep. David Obey of Wisconsin, the ranking Democrat on the House Appropriations Committee, called the debate over the congressional OCS moratorium "very frustrating," adding that it was "almost like abortion."

He said he would support the Peterson amendment if it was part of a more comprehensive energy package. "If you think this is part of the solution...then let's have a comprehensive [package] to deal with all of the problems." Until then, Obey said he preferred to stick with the protections against drilling in the federal OCS.

The committee also adopted an amendment by Rep. Maurice Hinchey (D-NY) that was modified by the committee calling on the Department of Interior to suspend royalty relief for production on federal lands occurring after the enactment of the bill. In addition, the proposal directs the Interior secretary to seek to renegotiate more than 1,000 royalty-free leases that the Government Accountability Office estimates will cost the federal government up to $20 billion in lost revenues over 25 years. That figure could grow to $80 billion if Oklahoma producer Kerr-McGee wins a pending lawsuit that would expand the scope of royalty relief, Hinchey said.

The loss of revenues stems from Interior's failure to include price thresholds in oil and gas leases that were issued in 1998 and 1999. The thresholds essentially are price ceilings, which when exceeded make production from the leases royalty bearing. As a result of the omission, Hinchey contends that oil and gas producers are escaping the payment of billions of dollars of royalties in the face of record energy prices.

Hinchey's amendment would suspend royalty relief for future leases when oil prices exceed $34.71 a barrel over four consecutive weeks and when natural gas prices exceed $4.34/Mcf for four consecutive weeks. And it sought to punish the holders of the 1,000 leases who refuse to renegotiate in good faith with the federal government by barring them from bidding on future leases. This latter language sparked a loud debate among committee members, with some saying it amounted to arm-twisting.

In an effort to resolve the dispute, Rep. Jack Kingston (R-GA) offered an amendment to revise Hinchey's proposal by eliminating the part about barring uncooperative producers from bidding on future leases, according to Congressional Quarterly. Both Kingston's modification and Hinchey's revised amendment were accepted by voice vote, it said.

When the spending bill reaches the House floor, House Democrats said they plan to restore the language that would prohibit producers from bidding on future leases if they refuse to renegotiate their existing royalty-free leases."We will aggressively be fighting to keep my amendment intact, and are prepared to aggressively fight on the House floor if need be to end this unfair subsidy for oil and gas companies," Hinchey said.

In addition, Democrats said they were prepared for Republicans on the House Rules Committee to remove the Hinchey amendment before sending the Interior spending bill to the House floor. If that occurs, the Democrats said they will offer another amendment on the floor to fight royalty relief.

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