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Interior Official Cites Cost Concerns With House OCS Bill

June 19, 2006
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The Bush administration favors opening up additional oil and natural gas resources for development on the Outer Continental Shelf (OCS) and would support an "appropriately structured revenue-sharing" plan with energy-friendly coastal states, an Interior Department official told a House committee last Wednesday.

But the administration has "serious concerns" about a House bill, sponsored by Rep. Bobby Jindal (R-LA), that seeks to accomplish both aims because of the short- and long-term costs associated with the measure, said Johnnie Burton, acting assistant secretary for Interior's Land and Minerals Management, during a House Resources Committee hearing on the bill.

The measure (HR 4761) would give states the ability to opt out of the congressional ban on oil and gas drilling off their coasts, or to opt in and extend the presidential ban on drilling off their shorelines beyond the 2012 expiration date. States also would be able to decide what type of leasing they want: oil leasing, natural gas-only leasing or both. And the bill would allow states to collect 75% of the royalties from offshore production from the edge of state waters (three miles offshore) to the 12 nautical mile mark, and 50% of royalties on production beyond that mark.

"The administration generally [has] supported this concept, stating its support for the continuation of moratoria and willingness to discuss with individual states their wish to explore the possibility of having oil and gas activity conducted on the OCS off their coast," Burton said. "The president has made it very clear that he wants the states to have a voice in that dialogue."

But the White House does have concerns about Jindal's proposal for federal-state sharing of royalties on production in existing fields. "We would be more interested in discussing new [production] areas that are not factored into [budget] projections at this time," she told House lawmakers. "I think the administration is willing to talk about revenue-sharing, but in the context of new [production] areas," Burton said.

"If we were to give up existing, projected revenue, that would be very difficult" for the federal government, she noted. Burton declined to estimate how much money the federal government could lose if it shared royalties with coastal states as dictated by the bill.

"I guess it's OK to share those revenues with a state that's onshore, but it's questionable to share [them] with a state" with offshore production, said Rep. Greg Walden (R-OR). The federal government presently shares 50% of the royalties from onshore production with states, but it parcels out a much smaller slice of the offshore royalty pie to coastal states.

There "are lots of good things in this bill," but "we have serious concerns about the cost of this bill" with respect to revenue-sharing and other activities, such as buying back leases, she said.

Another problem with the bill is that it would mandate that Interior hold two lease sales in the 181 area of the eastern Gulf of Mexico in a one year period. This would give the oil and gas industry little time to prepare for the lease sales, Burton said.

In developing Interior's five-year leasing plan for 2007-2012, she noted that 70% to 75% of the comments from the public signaled support for expanding the OCS areas for oil and gas production. At the same time, Burton said the majority of comments from the energy industry were not in favor of gas-only leasing, as proposed by the Jindal bill, saying it would be too difficult to predict with certainty the amount and type of hydrocarbons located in frontier offshore areas.

Burton disagreed with critics who claim that oil and gas production is not environmentally sound. "This industry has come a long way, dare I say, since the Santa Barbara" oil spill in the late 1960s, she said. "I think the [environmental] record of this industry is one of the best in the industrial world."

But coastal states such as Florida, which fears production in the eastern Gulf would foul its beaches, have been allowed to guide a federal policy that puts much of the offshore off-limits to producers. "I wish the White House staff would get their heads out of the Florida sands." said Rep. John Peterson (R-PA), who has tried -- albeit unsuccessfully -- to push through a bill lifting the OCS moratorium to allow gas-only drilling.

If the comprehensive Jindal bill were to clear the House Resources panel and the full House, it's unlikely to have much success in the Senate. "We have a very narrow bill" in the Senate that would open more acreage in the Lease 181 area to producers, "and we can't even get that moving," said Bill Wicker, spokesman for Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the Senate Energy and Natural Resources Committee.

"If it's difficult for us to get traction" on this "narrowly focused" bill, "I don't see much success with a broader bill," he told NGI. The Senate bill, sponsored by Bingaman and Senate Energy Chairman Pete Domenici (R-NM), applies solely to the Lease 181 area in the eastern Gulf, does not open any area currently under moratorium and is silent on the issue of sharing royalties. "It's about as tightly drafted, narrowly focused as a bill can get," Wicker said.

Before bringing the bill to the floor, Domenici and Bingaman are seeking the support of 60 senators to fend off an anticipated filibuster by the Florida senators. The support for the bill currently is "north of 50, but not quite 60," Wicker said.

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