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Salazar Sees New OCS Leasing Plan by Around 2010

Interior Secretary Ken Salazar told a Senate panel last Tuesday that he expects the department to have a revised five-year plan for oil and natural gas leasing on the Outer Continental Shelf (OCS) ready by September 2010 or possibly earlier.

"Sometime within the year after those comments are all in [on Sept. 23], I hope that we are able to then have a comprehensive plan with respect to the future of the [OCS]," he said during a Senate Energy and Natural Resources Committee hearing on energy development on public lands and the OCS. "I think the renewable energy [rulemaking] part...frankly is probably going to be easier than the parts that will deal with additional production in the offshore."

In February Salazar delivered a blow to domestic oil and natural gas producers when he took steps to delay the completion of a Bush-era five-year offshore leasing plan (2010-2015) that proposed lease sales in previously banned areas of the OCS (see NGI, Feb. 16). He extended the public comment period by 180 days to Sept. 23. Salazar further directed Interior's Minerals Management Service (MMS) and the U.S. Geological Survey to issue a report on traditional and renewable OCS resources in 45 days. And he is scheduled to host four regional meetings (New Jersey, Louisiana, California and Alaska) in April to receive feedback on OCS oil and gas development.

"I was disappointed by your decision" to stall the Bush-era offshore leasing plan, said Sen. Jim Bunning (R-KY). There "was no need" for the Bush administration -- prior to leaving office in January -- to reopen the existing five-year (2007-2012) leasing plan for the OCS, Salazar answered (see NGI, Jan. 19).

"The time that we have chosen [for review] gives us ample time...to figure out a way forward" on the 1.75 million-acre offshore "asset" that belongs to the American public, Salazar noted. The Obama administration is facing a "new reality" with no drilling restrictions in the OCS, and so it "[needs] to be thoughtful" in drafting a future plan for development of the federal offshore.

He sidestepped a question by Sen. John McCain (R-AZ) about which parts of the OCS did President Obama support opening to oil and gas drilling. Salazar said the president backed offshore development as part of a comprehensive energy bill. But "the devil's in the details," countered McCain.

Sen. Robert Menendez (D-NJ) applauded Salazar's decision to extend the comment period on the "hastily constructed" five-year leasing plan. He questioned why producers need more areas to drill when the rig activity has fallen to 1,200 nationwide from 2,400 last year.

Some critics have accused the Obama administration of "rolling back" opportunities for oil and natural gas production, Salazar said, but he noted that "it is very much a part of our energy future." The department has held seven onshore oil and gas lease sales this year, with producers purchasing 326 leases, covering 250,000 acres, for more than $32 million, according to Salazar. Interior's Bureau of Land Management (BLM) is scheduled to hold an additional 32 oil and gas auctions for onshore public lands throughout the year.

Salazar attended the MMS lease sale last Wednesday, which offered 34.6 million acres in the Central Gulf of Mexico, including 4.2 million acres in the prized "181 South" area. The sale attracted nearly $703.05 million in high bids (see related story). It was the first of two Gulf of Mexico lease sales scheduled for this year. These oil and gas lease sales "should speak very loudly" of the Obama administration's support for producers, he noted.

Under questioning from Sen. Robert Bennett (R-UT), Salazar said the agency was still reviewing the 77 parcels that Interior withdrew in February following an auction in Utah (see NGI, Feb. 9). He stressed that the leases, which are near Arches and Canyonlands national parks, Dinosaur National Monument and Nine Mile Canyon, have not been canceled as of yet. Producers bid about $6 million on the 77 parcels that were auctioned off during a BLM sale on Dec. 19.

Bennett signaled last week that he plans to place a "hold" on the nomination of David Hayes to be Interior deputy secretary until issues related to disputed Utah oil and gas leases are resolved to his satisfaction (see related story).

As for directional drilling of the Arctic National Wildlife Refuge (ANWR), Salazar said that while drilling technology has "significantly changed" over time to minimize ecological harm, the Obama administration believes ANWR needs to be protected. "The question of whether or not you could do directional drilling without impairing the ecological [balance] is...open" to debate, he said. "Most of what I have seen up to this point is that it would not be possible to do that." He called ANWR one of those "special places and treasured places that we will not disturb."

Meanwhile, Salazar said the Obama administration proposed stripping oil and gas producers of tax breaks for "a very simple reason and that is they are not needed" anymore.

"Even the prior administration under President Bush said that they didn't need any more [tax] breaks. I think it's simply a sense of fairness," he said in a teleconference with reporters from Colorado last Tuesday.

Salazar met last Thursday with the board of directors of the American Petroleum Institute (API), including the CEOs of the nation's top oil and gas companies. "My message to the oil [and gas] companies will be simple: they are and will remain an important part of our energy future," and "we need to work together to address [future] energy challenges," he said prior to the meeting.

API, which represents major producers, and its members "have a huge stake in the energy development for our country," he said. This "direct dialogue" will give producers an "opportunity to tell me what their concerns are."

In addition to the the administration's proposed tax hikes, a key issue for producers is Interior's efforts to reform royalty rates (see NGI, March 9). "With respect to the...concerns and complaints that I've heard from the oil and gas industry that the increases in royalties may end up diminishing their capacity and somehow is unfair, my response to that is we have a responsibility to the American taxpayer" to collect a "fair return" on production on public lands, Salazar said.

"We will look forward to arrive at what will be a fair return to the American citizen from the lease sales, as well as rentals."

Asked why producers were being singled out for repeal of the Section 29 manufacturing tax credit, he said. "Things are not being handled in Washington the same way that they've been handled in the past. Not everyone is going to be happy."

Salazar dismissed the possibility that higher taxes and royalty rates could result in less production and thus limited supply, which could send oil and gas prices higher. "With respect to the ups and downs in terms of gas prices, that really is a reflection of the failure of the United States of America for now nearly 40 years to seize the opportunity to create our own energy independence here at home. So we are subject to the spikes that go up and down with the global economy and action that OPEC takes."

In a related development, Interior and the Federal Energy Regulatory Commission (FERC) last Monday signed a memorandum of understanding (MOU) that seeks to resolve a long-standing "jurisdictional feud" between the two agencies over the siting of renewable energy facilities on the OCS.

"Our renewable energy is too important for bureaucratic turf battles to slow down our progress...This agreement [with FERC] will help sweep aside red tape so that our country can capture the great power of wave, tidal, wind and solar power off our coasts," Salazar said.

The MOU spells out Interior's authority under the Outer Continental Shelf Lands Act, which was amended in 2005, to permit the production, transportation or transmission of energy from additional sources (other than oil and natural gas) on the OCS, including renewable energy sources. In particular, Interior has permitting and development authority over wind power projects that use offshore resources beyond state waters.

The Federal Power Act gives FERC the authority to manage the licensing of "hydrokinetic" power projects, which can be developed offshore through new technologies that seek to convert wave, tidal and ocean current energy to electricity.

Salazar told the Senate energy panel last week that Interior and FERC have been working in a coordinated fashion to address the issue of siting of renewable energy projects.

Sen. Lisa Murkowski of Alaska, the ranking Republican on the Senate energy committee, urged Salazar not to forget about domestic oil and gas production. "We need to make sure that those resources are not closed off" as Interior and FERC pursue renewable energy development, she said.

She said she supports efforts to move toward greater use of renewable energy, but she noted the country will continue to rely on conventional oil and gas for years to come. "I'm concerned that we are trying to pay for the transition to renewable energy by taxing our existing energy production out of existence. That would be shortsighted. What's needed is greater investment in all types of American energy."

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