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Obama Orders Lease Sales in Alaska, Off East Coast

In a surprising shift in policy, President Obama announced over the weekend that his administration plans to open previously closed areas in Alaska, off the Atlantic Coast and in new areas of the Gulf of Mexico (GOM) to oil and natural gas drilling, at the same time extending some current leases. Obama said he nevertheless supports a Senate bill to cut billions of dollars of subsidies for producers.

"I am directing the Department of Interior to conduct annual lease sales in Alaska's National Petroleum Reserve [NPRA], while respecting sensitive areas, and to speed up the evaluation of oil and gas resources in the Mid- and South Atlantic. We plan to lease new areas in the Gulf of Mexico as well, and work to create new incentives for industry to develop unused leases both on and offshore," the president said in his weekly address Saturday.

Obama had proposed development of the Mid-Atlantic (offshore Virginia) and South Atlantic regions, as well as expanded development of the GOM and offshore Alaska, prior to the deadly blowout of the Macondo well in April 2010, which lead to the explosion aboard the Deepwater Horizon rig and its sinking off the coast of Louisiana (see Daily GPI, April 1, 2010). The administration quickly scrapped its plan after the disaster.

In his weekly address, Obama further said "We're also taking steps to give companies time to meet higher safety standards when it comes to exploration and drilling. That's why my administration is extending drilling leases in areas of the Gulf that were impacted by the temporary moratorium, as well as certain areas of the coast of Alaska. And to streamline that permitting process, I am establishing a new team to coordinate work on Alaska drilling permits."

The Senate Energy and Natural Resources Committee plans to consider four bills Tuesday that have goals similar to those of Obama's: (S. 843) would establish regional joint Outer Continental Shelf (OCS) leasing and permitting coordination offices in Alaska, and in the Atlantic and Pacific regions; (S. 516) would extend OCS leases to accommodate permitting delays and to provide operators more time to meet new drilling and safety regulations; (S. 916) calls on the Interior secretary to conduct a comprehensive inventory of oil and gas resources in the Atlantic, Gulf and Alaska regions; and (S. 917) would reform the responsibilities of the Interior secretary with respect to management of the OCS, and requires the secretary to conduct a review of royalty and rental rates within a year of the bill's enactment and every four years thereafter.

Rep. Doc Hastings (R-WA), chairman of the House Natural Resources Committee, said Obama's actions were baby steps. "The Obama administration held a lease sale in the NPRA in 2010 -- this is not a new proposal. The real problem is the Obama administration continues to delay the issuance of permits for necessary roads, bridges and pipelines to transport the energy once it's produced," he said.

And before the president "touts increased production in the Atlantic, don't forget that his administration canceled the Virginia lease sale scheduled to take place this year. Speeding up seismic work is a puny consolation prize for delaying the lease sale until at least 2017," Hastings noted. As for holding GOM lease sales in 2012, he said "these lease sales were previously scheduled to take place in either 2011 or 2012 until they were delayed by the Obama administration. The president is not opening new areas for drilling."

Hastings said Obama's decision to extend drilling leases in the Gulf and Alaska that were impacted by the moratorium "is a simple matter of fairness that the...administration is finally recognizing." He added that the president's proposal to create a team to "look at permits makes a good talking point, but means nothing until actual permits in Alaska are issued."

While pressing for expanded oil and gas development, Obama and Capitol Hill Democrats are intent on taking the long-standing tax breaks away from producers. "The third step we should take is to eliminate the taxpayer subsidies we give to oil and gas companies. In the last few months, the biggest oil companies made about $4 billion in profits each week. And yet they get $4 billion in taxpayer subsidies each year...at a time when Americans can barely fill up their tanks [and] at a time when we're trying to reduce our debt," the president said.

"Before I was president, the CEOs of these [major oil and gas] companies even admitted that the tax subsidies made no sense." Obama said that there would be a vote in the Senate this week to end the billions of dollars in tax breaks for oil and gas companies, and he called on "Democrats and Republicans [to] come together and get this done."

Senate Majority Leader Harry Reid (D-NV) is planning to hold a vote Wednesday on a bill authored by Sen. Robert Menendez (D-NJ) to eliminate $21 billion in tax breaks over the next decade for the five largest oil companies and use the savings to reduce the deficit. The bill also proposes to phase out royalty relief for Outer Continental Shelf and deepwater leases. Republicans have vowed to filibuster efforts by Democrats to repeal oil and gas tax perks.

"We expect the Menendez bill to fail," wrote energy analysts Christine Tezak and Brian E. K. Kerkhoven of Robert W. Baird & Co. in their "Energy & Environmental Policy Playbook," which was released Monday.

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