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Broad OCS Bill Gets House Panel's Nod, Goes to Floor

The House Resources Committee last Wednesday voted out by a wide margin amended legislation that seeks to open currently closed portions of the Outer Continental Shelf (OCS) to oil and natural gas drilling and increase coastal states' share of revenues from offshore production.

By 29 to 9, the panel approved the "compromise" OCS bill (HR 4761) that would give coastal states complete control over whether to allow natural gas or oil drilling, or both, within 100 miles of their shorelines and would remove the moratorium on all drilling beyond the 100-mile mark. States opting in favor of drilling would need the approval of their legislatures, governors and neighboring coastal states.

The measure also would give coastal states a 75% share of the OCS royalties from production within 12 miles of their shores, and up to 50% of OCS revenue beyond the 12-mile mark. In addition, it would impose a new "Conservation of Resources" fee on production from 1998 and 1999 leases that contain no price thresholds and thus are allowing producers to forego the payment of royalties on certain volumes.

The legislation, the Deep Ocean Energy Resources Act (DOER), is a "hybrid" of bills offered by drilling proponents Rep. Billy Jindal (R-LA) and John Peterson (R-PA).

Committee Chairman Richard Pombo (R-CA) offered a sweeping amendment in the nature of a substitute to the original bill, retaining all of the OCS provisions of the measure and levying a "Conservation Resources" fee on producers who refuse to pay royalties on production from leases negotiated in 1998 and 1999 that omitted the price thresholds. It was approved by voice vote. Due to the absence of the price triggers, the Government Accountability Office has estimated that the royalty-free leases will cost the federal government upwards of $10 billion in lost revenue.

The conservation resources fee would be $9/barrel of oil and $1.25/MMBtu of natural gas for leases that began producing on Oct. 1, 2005. It would only apply to leases in production located in more than 200 meters of water for which royalties are not being paid when the price for oil exceeds $40.50/barrel and the price of natural gas exceeds $6.75/MMBtu in 2006 dollars. The bill also establishes a fee on new and existing nonproducing leases ranging from $1 to $4 per acre each year. The fee would apply from and after Oct. 1, 2005.

By 23 to 7, the House committee rejected an amendment, sponsored by drilling opponent Rep. Edward Markey (D-MA), to strike all of the controversial OCS provisions in the bill, yet keep Pombo's proposal imposing a fee on producers who won't renegotiate their 1998 and 1999 leases to include price thresholds.

In supporting Pombo's proposed fee, Markey said "I am not as hopeful" as Johnnie Burton, the director of Interior's Minerals Management Service (MMS), that oil and gas companies holding the 1998 and 1999 leases will voluntarily renegotiate them with the federal government (see related story). The "Big Oil companies [are trying] to play Uncle Sam for a Big Sucker," he said.

The Markey amendment set off a Pombo tirade. "It is amendments like this that have lost us millions of jobs...and cost us billions of dollars," Pombo said. "It gets so old to hear the same thing over and over."

The bill retains a proposal that would make the royalty rate on shallow-water production from new OCS leases equal to the royalty rate on deepwater water production -- 12.5%. Currently the royalty rate on shallow-water production is 16 2/3%.

An amendment offered by Rep. Mark Udall (D-CO) also was rejected. His measure mirrored a Senate bill that seeks to make more acreage in the Lease Sale 181 area of the eastern Gulf of Mexico available to producers, while barring leasing within 100 miles of Florida and giving the Department of Defense the authority to reject drilling east of the Military Mission line. The sponsors of the Senate bill are Sens. Pete Domenici (R-NM) and Jeff Bingaman (D-NM). Their bill has been voted out of committee and is awaiting floor action.

While endorsing Udall's call for more 181 leasing, Pombo said he opposed the amendment because it would "gut the bill" that committee members had worked long and hard to craft.

The committee approved by voice vote an amendment by Rep. Henry Brown (R-SC) to increase coastal communities' share of royalties from offshore oil and gas production. Specifically, it would change the royalty portion allocated to coastal communities to 40% from 33%, and would reduce the portion allocated statewide to 60% from 66%. Of the 40% share, 75% would be apportioned to coastal counties located near the shoreline to 25 miles inland. The remaining 25% would be allocated to counties located between 25 miles and 75 miles from shore.

The Bush administration has concerns about the House bill, said MMS' Burton earlier this month. It believes that the measure's royalty-sharing provisions may serve to drain the U.S. Treasury, she noted.

"I don't want to hear any crocodile tears from the Bush administration about the deficit" and how this bill would make it worse, said Rep. Neil Abercrombie (D-HI). This bill "is generating revenue," he noted.

The bill may fare better on the House floor than previous OCS measures due to a thawing of opposition from Florida Republicans. While the Florida House delegation has for the most part been solidly against any legislation that would expand offshore, some Republicans are breaking away to express their support for an OCS bill that was voted out by the House Resources Committee.

Florida Republicans Adam Putnam, John Mica, Jeff Miller and Tom Feeney are among those who have signaled their support for HR 4761.

The close House vote (217-203) last month defeating a measure, sponsored by Rep. John Peterson (R-PA), to lift the moratorium on natural gas drilling "demonstrated how Florida's bargaining position is melting like snow in August," said Feeney. "I believe Florida's delegation should support this new deal out of the Resources Committee so that we will not have to stare at drilling platforms three miles off of our coast."

Feeney called this a "very good deal" for the Sunshine State, saying that he did not envision any scenario where the state legislature would allow drilling within 100 miles of the state's coastline.

Backing HR 4761 "isn't a shift" in position for Putnam, said spokesman John Hambel. He noted that Putnam supported the OCS provision in the deficit-reduction bill last year that would have permitted oil and gas drilling 125 miles from coastal states. The provisions on expanded OCS activity were stripped from the bill last November (see NGI, Nov. 14, 2005).

But Putnam opposed Peterson's measure this year that would have permitted natural gas leasing in waters beyond three miles from shore. He believed that would have brought gas drilling too close to Florida for comfort, Hambel said. The proposal was included in an Interior spending bill, which the House Appropriations Committee approved in May (see NGI, May 15). However, due to the efforts of Putnam and Rep. Lois Capps (D-CA), the House by a narrow margin struck the Peterson language from the bill last month (see NGI, May 22).

There has been a "sea change" or a softening of the House' position this year on the 25-year-old congressional moratorium on offshore drilling, Hambel conceded. The House Appropriations Committee routinely has adopted language barring drilling beyond three miles from shore, but this year it rejected that language in favor of Peterson's amendment, he said. Since 2005, Hambel estimated that 20 committee members have "flipped" their votes to embrace removing the offshore drilling moratorium.

He believes HR 4761, which the House will take up this week, has promise. "Given the fact that drilling at three miles [the Peterson measure] only lost by a handful of votes, I would think it probably has a greater chance of passing."

While some Florida Republicans were touting the bill, Florida Democrats last Wednesday held a press conference on Capitol Hill to present a united front against HR 4761. And if the measure should reach the Senate, drilling foes Sens. Bill Nelson (D-FL) and Mel Martinez (R-FL) have pledged to filibuster it.

The House's OCS measure would generally get a chilly reception in the Senate. The Senate is having a difficult time getting the support of 60 members to head off an anticipated filibuster of a more narrowly focused 181 bill. So a broader House bill wouldn't likely gain much traction in the Senate, particularly in this election year, Capitol Hill aides said.

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