The Senate Appropriations Committee Thursday struck a provision in a fiscal year 2008 spending bill that would have barred producers from bidding on future offshore leases unless they agreed to renegotiate the flawed 1998 and 1999 leases that they currently hold.

By 15-14, Senate appropriators adopted an amendment offered by Sen. Pete Domenici (R-NM) that removed the language from the spending bill for the Interior Department and Related Agencies.

The provision, which would have forced producers to renegotiate their 1998-1999 leases, was sponsored by Sen. Dianne Feinstein (D-CA), and was approved by an appropriations subcommittee earlier in the week. Domenici objected to Feinstein's measure, saying that the issue should be dealt with in the Senate Energy and Natural Resources Committee, where he is the ranking Republican.

"The effect of my amendment is to bring this challenging issue back to where it belongs -- in an authorizing committee. The language inserted by Sen. Feinstein into the Interior appropriations bill would have invalidated proper, legal contracts that were negotiated by the United States government," Domenici said.

"While I certainly share the frustration over the substantial loss of revenue as a result of the way these contracts were written, I do not believe that we should be in the business of invalidating legally binding contracts," he noted. "I look forward to finding a better, legally permissible approach to this question that will bring companies back to the table" to renegotiate these contracts.

It's estimated that the 1998-1999 leases, which omitted price thresholds, have cost the federal government approximately $1 billion in lost royalties so far, and unless corrected could cost up to $10 billion over the life of the leases.

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