While the House Friday passed the biggest overhaul ever for the offshore oil and natural gas drilling, the odds are slim that the Senate will give a repeated performance this week before lawmakers depart for their month-long recess.

Senate Majority Leader Harry Reid (D-NV) was expected to file a procedural motion Monday to kick off debate on his oil spill measure (S 3663), which would lift the existing $75 million cap on liability damages for oil spills, overhaul oversight of offshore regulation, require the disclosure of chemicals used in hydraulic fracturing (hydrofracing) and promote natural gas and plug-in electric drive vehicles, as well as provide $5 billion in incentives for the Home Star energy efficiency program (see Daily GPI, July 23).

"The earliest the Senate may vote on Reid's legislation appears to be Wednesday...Finding 60 votes to kill a promised Republican filibuster is looking increasingly difficult. Even moderate Democrats have taken issue with the bill's funding measure (an increase to the Oil Spill Liability Trust Fund)," said energy analyst Christine Tezak of Robert W. Baird & Co. The bill would raise the $1 billion liability cap on the Oil Spill Liability Trust Fund to $5 billion, and would increase the amount that oil companies are required to pay into the fund to 49 cents/bbl.

"Others are unhappy that Reid took out provisions from the Senate Energy Committee's bill from last June -- including the federal renewable electricity standard," she said. The Senate Energy and Natural Resources Committee voted out sweeping energy legislation last June (see Daily GPI, June 18, 2009). The full Senate was expected to take it up last fall, but never did.

Lee Fuller, vice president of government relations for the Independent Petroleum Association of America, said it looks likely that the Senate bill may be punted to either September or given lame duck status because the Senate plans to vote on Supreme Court nominee Elena Kagan this week.

FBR Capital Markets agreed. If a "broad compromise does not emerge by then [Wednesday], we expect the Senate bill to be set aside until after the...recess and the Senate to turn to the debate on Supreme Court nominee Elena Kagan," FBR analysts said.

"This is but a first chapter of energy changes" to come, said Sen. Byron Dorgan (D-ND). "There is an opportunity here between now and the end of this year" to make significant reforms in energy policy, he noted.

For producers, the most divisive issue in the Senate bill is the removal of the $75 million liability cap. Republicans and some Democrats, such as Sen. Mary Landrieu (D-LA), are concerned that an unlimited cap would prevent small and mid-sized producers from getting the insurance needed to operate offshore.

Sen. Robert Menendez (D-NJ) is said to be negotiating with Landrieu on a compromise to create an insurance pool funded by offshore producers, based on their production levels.

Dorgan attacked a provision in the energy bill that would require operators to disclose the chemicals used in a technique to produce natural gas from shale plays -- hydraulic fracturing (hydrofracing). "We've been doing hydrofracing for 50 years" in the Bakken shale formation, which is located in Dorgan's home state of North Dakota, he said.

People are now worried about what hydrofracing is doing to the water tables, Dorgan said, but he noted that he's concerned with those who want to shut down hydrofracing.

Likewise, the House oil spill package (HR 3534), which passed 209-193, calls for the lifting of the existing $75 million cap to cover the liability for the BP oil spill and future spills. This drew the ire of Republicans, moderate Democrats and the oil and natural gas industry.

It also would bar an operator with a checkered safety record from obtaining leases/permits from the federal government. And it would dismantle the "dysfunctional" Minerals Management Service; set minimum requirements for blowout preventers (BOP); require third-party safety certification of BOPs, well designs and cementing programs; stiffen penalties for violators; and establish a new training academy for offshore inspectors.

The House bill included an amendment to excuse drillers from the Gulf moratorium if they can show that they have complied with the new safety requirements issued by the Interior Department. The House rebuffed a Republican motion to recommit, which would have lifted the Obama administration's temporary moratorium on deepwater drilling in the Gulf.

The amendment, which was offered by Rep. Rep. Charlie Melancon (D-LA), "is broad enough to allow the [Interior] secretary to restrict drilling through the end of his six-month period. However, the vote is an important sign of pressure for the administration to end the moratorium soon rather than later," FBR analysts said.

The House Friday also approved whistle-blower protections for workers on the Outer Continental Shelf that are engaged in oil and gas exploration, drilling, production or cleanup.

Producers decried the House oil spill bill. "The unlimited liability provisions will drive the vast majority of American companies out of U.S. waters because they will not be able to obtain insurance coverage. Those remaining will be subject to huge cost hikes, reducing energy production, economic growth, American jobs and government revenues," said Jack Gerard, president of the American Petroleum Institute.

And "while the House recognized that the deepwater moratorium is a jobs killer, we need real action and call on the administration to lift the moratorium to allow our people to get back to work."

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