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Lawmaker Likens Salazar's Action to Reinstating OCS Moratorium

Interior Secretary Ken Salazar's decision last month to delay completion of a review of the new five-year (2010-2015) leasing program had the same effect as reinstating the moratorium on oil and natural gas drilling in the federal Outer Continental Shelf (OCS), a high-ranking Republican told a House panel last Wednesday.

"The true effect of Secretary Salazar's six-month delay is a reinstatement of a ban on drilling. Make no mistake: this action has precisely the same result as a moratorium. So let us call it what it truly is, a moratorium, not a delay," said Rep. Doc Hastings of Washington, the ranking minority member on the House Natural Resources Committee, during the panel's third and final oversight hearing on offshore drilling (see NGI, Feb. 16). The committee had heard from environmentalists and coastal states, most of which are opposed to expanded OCS drilling, in two prior hearings.

While Congress allowed the moratorium on oil and gas development in much of the OCS to expire last October, none of the resources in the previously banned offshore areas can be produced until the Interior Department gives the go-ahead, Hastings said.

Major producers -- Shell Oil, BP America, Devon Energy Corp., ExxonMobil Exploration Co. and Chevron North America Exploration and Production Co. -- appeared before the House committee and urged it to make permanent the removal of the moratorium on drilling off the East and West coasts and in the eastern Gulf of Mexico. The top executives said increased access to the OCS would have a stimulative effect, pumping money into a sluggish economy, creating jobs and pouring billions of much-needed dollars into federal and state coffers.

The "nation should not return to a blanket moratorium" on offshore drilling, said Shell Oil President Marvin Odum. In addition to the OCS, he said that "despite several years of effort," Shell has been unable to drill a single exploratory well on its leases in Alaska. Odum said he is concerned that the nation has been "lulled into complacency" by the steep drop in oil prices. He noted that the price volatility has "not vanished," but rather is "hidden" by the economic slowdown, and he believes higher prices will "return with a vengeance."

Likewise, Chevron North America President Gary Luquette urged Congress to "sustain the 2008 decision to open up the OCS" to producers (see NGI, Oct. 6, 2008). "America needs the energy, America needs the jobs and America needs the economic boost," he said.

If given the go-ahead to explore the once-banned areas in the OCS, Devon Energy CEO Larry Nichols believes his company would first want to pursue leases in the eastern Gulf of Mexico because that's where they have seismic data and infrastructure. Other producers said they would have to obtain seismic data and do other work before even looking to the East and West coasts.

Interior estimates that the OCS contains as much as 86 billion bbl of crude oil and 420 Tcf of natural gas, said Karen A. Harbert, president of the Institute for 21st Century Energy, an affiliate of the U.S. Chamber of Commerce.

The producers said all energy resources will be needed to meet future demand. "We're not in an either-or situation...We need all forms of energy," Luquette said. But oil and gas "will make up the dominant share" of the energy mix through 2030 as the country seeks to transition to green energy fuels. BP America President Lamar McKay agreed, saying that the company supported an "all-of-the-above" energy strategy.

ExxonMobil Exploration President Tim Cejka estimated that greater access to the OCS could translate into an additional $1.3 trillion in royalties, bonus bids and other revenues for the federal government, which would go a long way toward wiping away the federal deficit. It would "ease the pressure on federal and state budgets," he said.

ExxonMobil estimated it paid $16 billion in 2008 to the federal government in taxes, royalties and bonuses, while McKay pegged BP's payout at $5.3 billion and Odum estimated that Shell paid a total of $2.6 billion.

Expanded access to the OCS would contribute $273 billion annually to the national economy, according to the results of a new study released last week by the American Energy Alliance (AEA), a Washington, DC-based public policy advocacy group.

"I am not opposed to new drilling" in the OCS, said Committee Chairman Rep. Nick Rahall (D-WV). Fossil fuels will continue to be "major assets," and will provide "clear benefits" in terms of revenues and jobs. But the oil and gas resources from previously banned areas in the OCS will satisfy only a "drop in the bucket" of the nation's energy needs, he noted.

Rahall previously told environmentalists not to get their hopes up about Congress reinstating the ban on offshore drilling. "We may be in the situation where the ship has already sailed and the political reality may be that the moratoria as we knew it will not be reimposed."

There was no language to reinstate the OCS ban in a $410 billion omnibus appropriations measure, which was unveiled and passed by the House last week. The measure included nine separate spending bills to fund the federal government for fiscal year 2009. One of the appropriations bills -- funding for Interior, Environment and Related Agencies -- traditionally has included a provision to annually approve the moratorium. But the latest measure "does not contain language providing for a moratorium on Outer Continental Shelf oil and gas leasing activities," the House Appropriations Committee said.

All of the producers said they supported royalty sharing with the states as an incentive to open their coastal areas to drilling. And they called on Congress to reject the proposed "use-it-or-lose-it" strategy for leases. The Obama administration last week proposed employing the "use-it-or-lose-it" approach to leasing in the Gulf of Mexico, meaning that producers would risk losing those leases that they don't diligently pursue (see related story).

At another hearing on OCS drilling before the House panel last Tuesday, Rep. Dana Rohrabacher (R-CA) said the main stumbling block to more offshore oil and natural gas drilling was not the environment or the economy, but rather it was the view of platforms from shorelines. He recommended that lawmakers require companies to make their rigs more eye appealing, as is already being done in some coastal communities in California.

"Let me suggest that perhaps we could require a better-looking facade on...offshore oil rigs," Rohrabacher said. "In Long Beach they have beautiful facades and no one complains. I'll tell you right now if we would not be developing our offshore oil [resources] off of Long Beach, the city would go belly up economically. So let's require that the facades look beautiful. Let's paint them in green trees or whatever." He further noted that there were facades on top of rigs offshore Huntington Beach, CA, which he represents. Offshore drilling has occurred there for 30 years with "no significant problems."

"So it is time for us to quit worrying about the view, start standing up for the economy and the environment, but also stand up for our people who have a right to the benefits of this vast wealth that is offshore," Rohrabacher said.

Another California lawmaker, Democrat Rep. Lois Capps, disagreed. "I submit the view is not the issue," but rather it is "routine toxic discharges" from oil and gas development. "This business of drilling is very dirty...We need to shift away from using fossil fuels."

Rohrabacher signaled his support for expanded OCS development, but Rep Sam Farr (D-CA) said he was "strongly in favor" of Congress reinstating the moratorium on drilling off the West and East coasts and in the eastern Gulf of Mexico. Even if a producer could guarantee no spill would occur, he said he still wouldn't back offshore drilling. He noted that it was "high risk, low gain."

The ocean "is sick," Farr said, adding that a moratorium should remain in place "until we get this right."

State Sen. Frank Wagner of Virginia, who has taken a "leadership role" in the effort to develop gas resources off the state's coast, urged the House committee to work with Interior's Salazar to keep the Virginia lease sale on schedule for as early as 2011 (see NGI, Nov. 17, 2008). The Interior Department estimates offshore Virginia may hold 130 million bbl of oil and 1.14 Tcf of gas. The planned lease sale, if it occurs, would be the first off the Atlantic Seaboard in nearly 30 years.

"We do not hold the key. You in Washington do" to unlock the OCS oil and natural gas resources, Wagner said. By reimposing the moratorium, "we're...restricting ourselves from our own energy resources."

As Wagner testified before Congress last Tuesday, Virginia Gov. Tim Kaine made public a letter he sent to Salazar calling for a postponement of Lease Sale 220, which is proposed for Virginia's coast. "Our policies do not support exploration for oil or production of gas or oil, which would be allowed under Lease Sale 220," Kaine wrote. "I believe that no lease sale should be conducted in the Atlantic until the process that you have outlined for the five-year [leasing] program is complete."

When Salazar last month delayed the Bush-era's new offshore leasing plan for 2010-2015, he indicated at the time that he didn't think his action would affect the lease sale proposed for Virginia under the existing five-year program (2007-2012). The draft five-year oil and gas lease sale proposal for 2010-2015, which the Bush administration released prior to leaving office, proposes auctions of offshore drilling acreage in areas that were previously banned. It provides for 31 OCS lease sales in all or portions of 12 of the 26 federal planning areas. New areas proposed under the plan includes four areas offshore Alaska, two off the Pacific Coast, three areas in the Gulf of Mexico and three in Atlantic waters (see NGI, Jan. 19).

Rohrabacher said he objected to the Obama administration's decision to prolong by six months the process for reviewing the new leasing plan. "It makes no sense for us to delay developing our energy resources." But Farr, like Kaine, said he supported the delay. "We need to know more about the oceans and the impact on the oceans. Let's not just charge ahead."

Revenues from offshore drilling are needed to help Virginia deal with a $4 billion deficit, Wagner said. The Congressional Research Service estimated that offshore drilling would pump more than $120 billion into the California economy and more than $76 billion into states bordering on the Atlantic Seaboard, reported Rep. Hastings.

In addition to expanded drilling in the OCS, Rohrabacher asked Congress to address the activists and obstructionists who "have made it their job" to block energy projects, including solar projects. Many activists are stuck in the '60s, he said. And as a result, "things are being written off that are now smart that were [once] stupid."

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