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Senate Panel Prepares to Take Up Much-Anticipated Lease 181 Bill

Behind-the-scene negotiations over federal-state sharing of offshore production revenue were ongoing last week in anticipation of the Senate Energy and Natural Resources Committee's scheduled Wednesday mark-up and vote on legislation, sponsored by the panel's leaders, that seeks to make additional acreage in the natural gas-prone area known as Lease 181 available for oil and natural gas drilling.

The Senate measure (S 2253), introduced by Committee Chairman Pete Domenici (R-NM) and ranking Democrat Jeff Bingaman of New Mexico, would make 3.6 million more acres of the original Lease 181 in the eastern Gulf of Mexico available to producers. In contrast, the Interior Department's five-year (2007-2012) leasing plan for the federal Outer Continental Shelf proposes to offer two million more acres from the original Lease 181 area to producers and possibly open up acreage directly south of Lease 181.

Interior would offer the additional Lease 181 acreage for sale in the fall of 2007, but the Domenici-Bingaman bill could get expanded 181 leasing started much sooner. It all depends on when the Senate bill would be passed, said Interior Secretary Gale Norton last Thursday during a committee hearing on the department's proposed $10.5 billion budget for fiscal year 2007.

"If your legislation were passed today, we [Interior] would have one year from today to get that lease sale done. [But] if your legislation were passed in the fall, then we would all be on the same time track."

In preparation for Wednesday's mark-up, Sen. Mary Landrieu (D-LA) has been in negotiations with both Domenici and Bingaman, as well as other members of the committee, over her request to add language that would allow coastal states to recover a greater share of the revenues from production off their shores to use for wetlands restoration.

Domenici signaled last week that he might be able to support Landrieu's proposal provided that Bingaman gets on board, according to a report in Congressional Quarterly's Green Sheets. The backing of Bingaman would definitely broaden the support for the Lease 181 bill in the Senate, said Landrieu spokesman Brian Richardson. "As the ranking Democrat on the Senate Energy Committee, Bingaman holds a great deal of sway with his colleagues," he told NGI.

Landrieu has long pressed for greater federal-state sharing of revenue from offshore oil and gas production. Offshore production is expected to contribute four times more revenue to the federal coffers than onshore production in fiscal year 2007, she said. But coastal states that permit drilling off their shores will receive less than 1% of the revenue from offshore production, while interior states will get 50% of the revenue from onshore production. Landrieu believes that coastal states should receive 50% of production-related revenue as well, said Richardson.

Under questioning from Landrieu, Norton conceded that Wyoming was likely to receive $1.3 billion in revenue from onshore production this year, while Landrieu's state of Louisiana, a major offshore oil and gas producer, would only get about $2.3 million for production conducted in the 8(g) area, which is the first three miles of federal waters. "This discrepancy between the interior states and coastal states...really needs to be fixed," Landrieu said.

The Louisiana senator also asked Norton what steps her department has taken to implement provisions in the Energy Policy Act of 2005 (EPAct), which call for $1 billion in coastal impact assistance to be provided to the five coastal states that engage in offshore drilling. "We have begun the analysis for those guidelines" to implement the program, Norton said. She further noted that Interior's Minerals Management Service has redirected $600,000 to get the program off the ground.

Sen. Ken Salazar (D-CO) estimated potential revenues from an expanded Lease 181 sale would exceed $4 billion, but Norton declined to provide a specific figure. She noted that there would be two sources of revenue from Lease 181 -- bonus bids, which she said would be "fairly significant," and ongoing revenue from production royalties. Norton reported that the federal government received $340 million in bonus bids from the downsized Lease 181 sale that was held in late 2001.

On the House side last week, Interior's proposed fall 2007 timetable for leasing additional acreage in Lease 181 came under attack. Norton's "answer that 181 [leasing] is going to start in 2007 is very distressing. Isn't there anything we can do to move that puppy up?" asked Rep. Don Sherwood (R-PA) during a hearing of the House Interior, Environment and Related Agencies Subcommittee on Interior's proposed budget.

Under the Outer Continental Shelf Lands Act, which requires extensive public comment and environmental review of the agency's leasing plans, "that's the earliest time which we could do that," Norton told House lawmakers.

"That's two years before we even start the process," complained Rep. John Peterson (R-PA), who last week said he will propose language in the subcommittee's fiscal year 2007 bill to remove the congressional moratorium on drilling in much of the Outer Continental Shelf (OCS). "Last year he tried [unsuccessfully] to strike the language on the House floor. This year he's going to ramp up his efforts much sooner," said spokesman Chris Tucker. "What he'd like to do ideally is have a clean bill [without the moratorium] looked at in subcommittee, and then have the proponents of the moratorium" make their case for why it should be reinserted in the Interior appropriations bill, he noted.

Peterson believes his proposal will have the full support of natural gas consumers who have seen their utility bills escalate as a result of the run-up in prices. High natural gas prices have been "caused by three presidential moratoriums -- by Bush 1, Clinton and Bush 2 -- and a Congress who's had their eyes shut to the future of this country," he said.

"If we don't change our natural gas policy [offshore], we're going to lose" critical industries, such as the fertilizer and chemicals industries, Peterson noted. "We're shooting ourselves in the foot very severely," echoed Sherwood. "In the area of natural gas, I think our governance would get a very poor grade," he told the House subcommittee.

As for other energy issues addressed during the Senate hearing, Domenici urged Interior's Norton to move expeditiously to get the streamlined permitting pilot programs for oil and gas leases up and running. Congress, in EPAct, created a pilot program in seven Bureau of Land Management (BLM) offices in New Mexico, Utah, Colorado, Montana and Wyoming to bring oil and gas from approved lease sites to market sooner by ending months and years of bureaucratic delays related to permitting.

"We want you to move ahead quickly in getting those permits out the door," he told Norton. He noted the Office of Management and Budget wants the committee to amend EPAct to allow lease rent in those states to go into the Treasury. Congress authorized BLM to keep that money -- approximately $22 million annually -- to fund the pilot programs. That's where the money will stay, Domenici said. "The repeal of those provisions won't take place up here."

Norton said that BLM has been instructed to move quickly on staffing the agency offices to reduce the backlog of permitting requests.

Sen. Craig Thomas (R-WY) called on Norton to respond to a recent published report that the department has cut back on the number of audits that it carries out on oil and gas leases. Since 1982, she said Interior has collected an additional $2.6 billion in royalties as a result of audits, which are conducted three years after energy production occurs.

Norton said the royalty-in-kind program, whereby producers pay their royalties with product rather than cash, has been "extremely effective" in reducing the department's need to conduct audits.

The Interior secretary also assured senators that the department has not scaled back its inspections of oil and gas activities. Interior expects to fund BLM at a level that will allow it to conduct 50% more than the 17,000 inspections that were carried out in 2005, she said.

Norton further said the Bush administration continues to support the opening of the coastal plain of the Arctic National Wildlife Refuge, which she called "the largest onshore source" of energy for the country.

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