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House Passes Broad OCS Leasing, Revenue-Sharing Bill

In a major victory for the oil and natural gas industry, the House last Thursday approved by a wide margin comprehensive legislation that would open historically closed portions of the federal Outer Continental Shelf (OCS) to energy leasing and would pave the way for greater sharing of offshore royalties with states.

By 232 to 187, House lawmakers voted out HR 4761 that gives states complete control over whether to allow oil and natural gas leasing within 100 miles of their shorelines, and lifts the 25-year-old moratorium on all drilling beyond the 100-mile mark. States would need the approval of their legislatures, governors and neighboring states to begin leasing. The bill also would give states, which historically have received a small share of the royalties from production off their coasts, a bigger slice of offshore revenues.

Florida Republicans, who had objected to expanded offshore drilling in the past, contributed to the favorable vote on the bill that was sponsored by Reps. Bobby Jindal (R-LA) and John Peterson (R-PA). "It's not a perfect bill," but it gives Florida's coastline the needed protection, said Rep. Adam Putnam (R-FL). It provides Florida with "concrete proof" that rigs will not dot the Florida shoreline, he noted. It gives Florida "unprecedented, permanent protection," agreed Rep. Ander Crenshaw (R-FL). Putnam called on the Florida delegation to support the measure.

The Bush administration had expressed concern that the royalty-sharing provisions of the bill would deprive the federal government of revenues. It also cited concerns with language promoting natural gas-only leasing and language easing the way for producers to seek buy-back of leases by the federal government, according to Congressional Quarterly's Greensheets.

To quell some of the concerns, the House approved a manager's amendment offered by House Resources Committee Chairman Richard Pombo (R-CA), which restructured the formula for sharing oil and natural gas royalties with the states and dropped other provisions that would have redirected revenues from the federal coffers.

The Congressional Budget Office (CBO) last week estimated the bill would cost the federal government a staggering $11 billion in lost revenues over the 2007-2016 period. But Pombo reworked the bill and came out with his amendment. It shaved the measure's costs significantly, with the CBO calculating that the amended bill would result in a net revenue gain of $900 million for the federal government over the 10-year period. In the longer term, Pombo believes the bill could potentially result in $1 trillion in additional royalties.

However this did not quiet House Democrats. Rep. Lois Capps (D-CA) called the measure "fiscally irresponsible," while Rep. Edward Markey (D-MA) said it would "bust the Treasury." They argued that, according to the Interior Department's Minerals Management Service, the revenue-sharing provisions of the bill would cost the U.S. $74 billion over 15 years and $600 billion over the longer term, with the lion's share of the royalties going to four coastal states -- Texas, Louisiana, Mississippi and Alabama.

These are "fuzzy numbers" from the Democratic side of the aisle, countered Pombo. "Our [current] energy policy is 'No'" to all energy development, he said. "You can't be 'No' on everything. This bill was a compromise between 24 different bills on offshore [energy]," and gives states the ability to protect 100 miles off their coasts and share revenues "exactly the same" as is done with production in interior states.

By 249 to 170, the House rejected a Democratic amendment offered by Markey to gut the provisions in HR 4761 that would expand leasing to include new areas of the federal OCS, yet maintain a provision requiring oil and natural gas producers to pay royalties on certain offshore leases once price thresholds are achieved.

This measure "takes out all the energy production. It is a callous disregard for the millions of jobs that have been lost" in the United States due to an energy policy that opposes drilling in many offshore areas, Pombo said. "This amendment went down big" in the House Resources Committee last month, he noted.

Lawmakers also defeated by 353 to 65 an amendment offered by Rep. Michael Bilrakis (R-FL), which sought to extend Florida's protections from oil and gas drilling up to 125 miles from the state's coastline.

The fate of the broad House OCS bill in the Senate is unclear. The Senate currently has its work cut out for itself just getting a narrower bill through that would make more acreage in the Lease 181 area in the eastern Gulf of Mexico available to producers. Some Capitol Hill aides believe the House bill will get a chilly reception in the Senate.

But Sen. Pete Domenici (R-NM), chairman of the Senate Energy and Natural Resources Committee, last Thursday expressed his support for the House's efforts. "I am pleased the House is taking up important OCS legislation to increase our domestic supply of oil and gas...I think we should take all responsible steps to increase our own energy production," he said.

"I've had a number of productive meetings with Sen. [Mary] Landrieu and others about my Lease Sale 181 bill. We've made good progress in those meetings, but we're not there yet," Domenici noted. Still, "I remain optimistic...that we can pass a bill in the Senate in July, and potentially go to conference with the Pombo/Jindal bill just passed by the House."

Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the Senate energy panel and co-sponsor of the Lease Sale 181 bill, had reservations about the House bill. "I strongly support the goal of increasing U.S. oil and gas production...But HR 4761 contains controversial provisions that would create, in the long term, a huge hole in our federal budget and undermine environmental protections on our lands and off our coasts," he said.

"Even the president opposes the diversion of hundreds of billions of dollars of revenue that is contained in the bill -- and he is right to do so," Bingaman noted. "There is very little time this year to pass energy legislation of any type. We are only likely to succeed if we avoid provisions that will weaken environmental standards or, as the administration has indicated, will compromise the long-term fiscal integrity of the government."

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