In a significant victory for the energy industry Wednesday, the House Appropriations Committee approved by a wide margin an amendment to repeal the 25-year congressional moratorium to allow for expanded natural gas exploration and production off the Atlantic and Pacific coasts, as well as in the eastern Gulf of Mexico..

But the oil and gas industry also suffered a defeat when the committee adopted by voice vote an amendment that could put an end to royalty relief for existing leases issued by the Department of Interior in the late 1990s.

The House panel voted 37 to 25 to accept the amendment removing the Outer Continental Shelf (OCS) ban that was offered by Rep. John Peterson (R-PA), a strong proponent of opening up federal protected waters to permit expanded natural gas drilling. The House action was greeted by independent producers, chemical producers and consumer energy groups.

Both amendments were included in a $25.9 billion spending package for Interior, Environmental and Related Agencies for fiscal 2007, which the House panel voted out Wednesday.

This marked the second year that Peterson sought to repeal the congressional drilling ban. He offered a proposal in committee last year, but then withdrew it in the face of stiff opposition. Peterson offered the proposal again on the House floor last May, but it was defeated by 262 to 157. While Peterson has won the battle this year at the committee level, his amendment could be struck when the Interior spending bill reaches the House floor.

“We congratulate Rep. Peterson for his perseverance and passion in this important effort,” said Jack N. Gerard, president and CEO of the American Chemistry Council.

Natural gas is the “mother’s milk of our industry,” said Peterson in proposing his amendment, which would allow natural gas exploration up to 200 miles from shore. His proposal in no way affects the existing ban on oil drilling in the OCS, nor does it repeal the existing presidential moratorium already in place along much of the OCS. Peterson called it “the most important amendment [that] I have ever offered” in public office. “We are the only country in the world that has locked up our Outer Continental Shelf.”

Rep. Allen Boyd (D-FL) opposed the amendment, saying expanded drilling activity would interfere with the Navy and Air Force training and testing exercises in the eastern Gulf of Mexico. Rep. Don Sherwood (R-PA) called the “military issue a red herring.”

Rep. John Carter (R-TX) agreed. “If our pilots can’t fly low and miss a half dozen drilling wells, we need better training for them,” he said. “If we don’t start getting our act together and getting back in the petroleum business in the United States and drilling where our resources are, we are going to find ourselves up a creek and you can hook a sail up to your car and use wind power if the wind’s blowing towards work.”

Rep. Anne Northrup (R-KY) urged the panel not to hold OCS resources hostage any longer. “We are sitting on a committee today that could make a difference” in domestic supply and prices. “It is time for us to resolve this.”

Rep. David Obey of Wisconsin, the ranking Democrat on the House Appropriations Committee, called the debate over the congressional OCS moratorium “very frustrating,” adding that it was “almost like abortion.”

He said he would support the Peterson amendment if it was part of a more comprehensive energy package. “If you think this is part of the solution…then let’s have a comprehensive [package] to deal with all of the problems.” Until then, Obey said he preferred to stick with the protections against drilling in the federal OCS.

The committee also adopted an amendment offered by Rep. Maurice Hinchey (D-NY) that calls on the Department of Interior to suspend oil and gas contracts where royalties are not being paid and to renegotiate the leases. If leaseholders are not willing to renegotiate in good faith with the federal government, then they would not be eligible to bid on leases in the future.

The House panel also approved by voice vote a second-degree amendment offered by Rep. Jack Kingston (R-GA), which agreed with most of Hinchey’s proposal, except the latter part barring uncooperative producers from bidding on future leases.

Hinchey noted that his proposal would authorize the renegotiation of more than 1,000 leases that could cost the federal government up to $20 billion in lost revenues over the next couple of years.

The loss of revenues stems from Interior’s failure to include price thresholds in oil and gas leases that were issued in 1998 and 1999. The thresholds essentially were price ceilings, which when exceeded made production from the leases royalty bearing. As a result of the omission, Hinchey contends that oil and gas producers are escaping the payment of billions of dollars of royalties in the face of record energy prices.

The committee debate centered on whether Congress had the authority to interfere with existing contracts between the federal government and producers. Committee Chairman Charles Taylor (R-NC) argued that the Supreme Court precluded Congress from renegotiating existing contracts, while Hinchey and others said the U.S. government had the power to terminate contracts without cause.

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