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Florida Senators Offer Compromise Bill on Eastern Gulf; Industry Says 'No Thanks'

Florida's two senators introduced legislation last week that was billed as a compromise with the energy industry -- it would establish a permanent no-drilling zone in much of the eastern Gulf of Mexico to shield Florida and a military training area from energy production, and would make a limited amount of additional acreage in the natural gas-prone Lease Sale 181 available to producers.

But the offshore oil and gas industry didn't view it as much of a compromise, noting that the measure would permanently take a large chunk of the promising gas area known as Lease Sale 181 "off the table" for future production. And a key House energy lawmaker criticized the bill as being too narrow in scope.

The bill, sponsored by Sens. Bill Nelson, a Democrat, and Mel Martinez, a Republican, would permanently ban oil and gas drilling in waters ranging from 150 miles to at least 260 miles off the shores of the Sunshine State. Specifically, the bipartisan measure would establish a permanent no-drilling zone at least 260 miles west of Tampa, FL, in much of the eastern Gulf, and 150 miles south of Pensacola, FL, (near the Alabama border). The prohibition would stay in place even after the existing presidential and congressional moratoriums against drilling in the eastern Gulf expire in 2012, the lawmakers said.

The measure, known as "The Permanent Protection for Florida Act," would cancel inactive leases in the eastern Gulf as well, and in exchange would provide producers with royalty credits for active oil and gas leases in the central and western Gulf.

As a compromise gesture to the energy industry, the bill would open up 740,000 more acres for production, or approximately one-fifth of the 3.5-3.6 million acres of Lease 181 that are not currently available, a congressional aide told NGI. This would be in addition to the two million acres that already are accessible to producers in an area of Lease 181 that is south of Alabama, he said. A nearly 800,000-acre portion directly above that, known as the "stovepipe" area, would remain closed to drilling under the Nelson-Martinez bill.

The National Ocean Industries Association (NOIA), which represents the offshore energy industry, said it was "strongly opposed to the proposal...for the simple fact that it seeks to exert one state's control over vast tracts of the Outer Continental Shelf that are collectively owned and managed for the benefit of the entire United States." At a time when President Bush has set a goal to reduce dependence on foreign energy sources by 75%, "it is counter-productive to simply place vast tracts of offshore resources off-limits," the offshore group said.

"It doesn't look like it adds a lot to the areas [of Lease 181] that already are open. It takes a lot off the table," said NOIA spokesman Michael Kearns.

A spokeswoman for House Resources Committee Chairman Richard Pombo (R-CA) last week called the measure "impractical" because it would block drilling in parts of the eastern Gulf, as well as in the Great Lakes region, but does not address other areas of the Outer Continental Shelf (OCS). Pombo "thinks the committee would rather have something focusing on the entire OCS [instead of] a one-shot deal," said Jennifer Zuccarelli.

The bill also "does nothing to increase domestic supplies," or encourage revenue-sharing between the federal government and coastal states, she noted. Currently, states that permit drilling off their coasts receive less than 1% of offshore drilling revenues.

The move by the Florida senators was seen by many as an attempt to derail an expected broader proposal by Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee, to open up more of the eastern Gulf to gas leasing. Domenici is working with Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the Senate energy panel, to "come up with a solution to access some of the gas in [Lease] 181," said Marnie Funk, a spokeswoman for Domenici.

"We don't have a bill" yet, she told NGI. Funk could not say when a measure would be introduced, or whether it would be a stand-alone measure or attached to another piece of legislation.

The Nelson-Martinez measure "in part" also is a response to the new administrative lines drawn by the Interior Department in the eastern Gulf that Nelson contends would give energy-friendly Louisiana and Alabama control over waters that are close to Florida's shores, including portions of the gas-rich Lease 181, the aide said. Nelson, as well as other members of Florida's congressional delegation, believe Interior plans to use the boundary changes to open up a greater portion of Lease 181 in its upcoming five-year leasing plan for 2007-2012. Interior is expected to issue its draft five-year leasing plan soon.

Florida saw the boundary changes as "the latest threat to the state," the aide noted. In addition, he said Florida was concerned by all the post-hurricane efforts in Congress last year to open up the entire Gulf to natural gas drilling, and fears the possibility of a repeat this year. And lastly, he noted that an administrative agreement keeping much of Lease 181 closed to drilling is set to expire in 2007.

Elsewhere in Washington last week, an analyst said he believed that Interior's new boundaries in the Gulf could lead to outcomes that would not be particularly favorable for Florida. Interior's Minerals Management Service (MMS) could use the new boundaries to include greater portions of the eastern Gulf within its soon-to-be-released leasing proposal for the 2007-2012 period, said analyst Kevin Book of Friedman, Billings, Ramsey & Co., an investment firm, in a report on "The State of U.S. Energy Policy."

Or, Congress could react to the MMS boundaries by debating and passing its own, limited OCS bill confining new production exclusively to the Lease 181 area (and possibly setting different boundary lines), he noted.

The warm weather so far this winter and subsequent drop in natural gas prices may have hurt the chances for a bill to be passed this year that would open up more of the OCS to oil and natural gas drilling, Book said. "We expect proposals that would give states a share of federal royalties in return for allowing new offshore production in their adjacent federal waters to resurface this year, but we feel that the unseasonably mild winter and resulting decrease in natural gas prices have hurt odds of passage," he noted.

"With six weeks left in winter and natural gas futures in the $9/Mcf price band, we doubt that offshore drilling supporters in either chamber will be able to build [enough] support for the so-called 'state option' proposals," which would give coastal states the opportunity to opt out of the moratoriums on energy exploration and production in federal waters off their shores, Book said.

Even so, he noted a number of Senate and House lawmakers -- Sens. Domenici, Mary Landrieu (D-LA), Mark Pryor (D-AR) and John Warner (R-VA), and Reps. John Peterson (R-PA) and Neil Abercrombie (D-HI) -- "have already voiced plans to offer offshore drilling plans."

He believes Senate support for an expanded OCS drilling bill "could quickly climb...if Groundhog Day sends temperatures plummeting and constituents' home heating bills skyrocketing."

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