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House Narrowly Rejects Proposal to Open OCS to Expanded Gas Drilling

The House last Thursday inflicted a blow on the energy industry by rejecting by a narrow margin efforts to open up much of the federal Outer Continental Shelf (OCS) to natural gas exploration and production. Some industry advocates were seeing the gain in support as evidenced by the close vote as progress toward an eventual win.

By 217 to 203, House lawmakers approved a bipartisan amendment offered by Reps. Adam Putnam (R-FL) and Lois Capps (D-CA) that struck language in the fiscal year 2007 Interior, Environment and Related Agencies appropriation bill that sought to repeal the 25-year-old congressional ban on natural gas drilling off the East and West Coasts, and in the eastern Gulf of Mexico.

The House Appropriations earlier this month approved an amendment, offered by Rep. John Peterson (R-PA), to remove the congressional moratorium on gas drilling as part of a nearly $26 billion spending bill for Interior and other agencies. But House lawmakers last Thursday headed off the efforts of Peterson, a strong advocate of expanding offshore gas drilling.

This marked the second year that the House has voted down Peterson's proposal to open the OCS to more gas drilling.

Although Thursday's vote was a defeat for the energy industry, it tried to put a favorable spin on the outcome. "The vote count -- 217 to 203 -- signals growing support for reexamination of OCS restrictions, as well as a heightened public awareness that producing natural gas along the coast can benefit the economy and the environment, while keeping our beaches and tourism industry thriving," said the American Gas Association, which represents gas utilities.

The American Chemical Council said the close vote was evidence of a "seismic shift" in the debate over offshore drilling. "The tide is turning in the natural gas debate. It is no longer 'if' Congress will address the crisis, but 'when.' One thing is certain: we will remain focused on advocating for natural gas supply legislation until the job is done," the chemical producer group said.

The "vote on the House floor was nothing short of phenomenal," said the Consumer Alliance for Energy Security, a coalition of consumer, industrial and institutional energy users.

Similarly, Peterson said while "the vote was certainly one that we would like to have won," he was encouraged by the "tone of the debate" and believes that Congress eventually "will decide to do what's right for the future of our nation's economy."

In another jab at the energy industry, the House by 252-165 passed an amendment that bars existing leaseholders that aren't paying royalties on their production from bidding on future leases, if they refuse to renegotiate the leases with the federal government.

Rep. Maurice Hinchey (D-NY) tried to get similar language through the House Appropriations panel earlier this month, but it was struck as committee members complained that it smacked of coercion against oil and gas producers.

The Hinchey proposal is aimed at reworking 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. The lost revenues stem 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 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.

"The House put its collective foot down [Thursday] and sent a loud and clear message to energy companies that their days of taking oil and gas from the American people without paying [royalties] for it are over," Hinchey said.

He noted that his proposal also "deals a stunning blow" to the pending Kerr-McGee lawsuit, in which he says the Oklahoma-based producer is seeking to escape $60 billion in royalty payments. "Kerr-McGee would not longer be entitled to new leases with the federal government if it prevails in its lawsuit."

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