The Senate Energy and Natural Resources Committee is expected to vote Wednesday on long-awaited legislation, sponsored by the panel’s leaders, that would open more of the natural gas-prone area known as Lease 181 to oil and gas drilling.

The Senate measure, introduced by Committee Chairman Pete Domenici (R-NM) and ranking Democrat Jeff Bingaman of New Mexico, would make an additional 3.6 million acres of the original Lease 181 in the eastern Gulf of Mexico available to producers. This contrasts with the Interior Department’s five-year (2007-2012) leasing plan for the federal Outer Continental Shelf, which proposes to offer two million more acres from the original Lease 181 area to producers and possibly open up acreage directly south of Lease 181.

Under Interior’s proposal, the agency plans to offer the additional Lease 181 acreage for sale in the fall of 2007, while the Domenici-Bingaman bill could get expanded 181 leasing started much sooner. It all depends on when the Senate bill would be passed, said Interior Secretary Gale Norton Thursday during a committee hearing on the department’s proposed $10.5 billion budget for fiscal year 2007.

“If your legislation were passed today, we [Interior] would have one year from today to get that lease sale done. [But] if your legislation were passed in the fall, then we would all be on the same time track.”

In anticipation of next Wednesday’s mark-up, Sen. Mary Landrieu (D-LA) asked Norton to identify the resource potential of the area south of the original Lease 181 area. Norton estimated it contains 700 million barrels of oil and 3.68 Tcf of natural gas.

Prior to the mark-up, “this committee is going to do a lot of work in this area, trying to identify new areas in the Gulf for oil and gas leasing,” Landrieu said.

Sen. Ken Salazaar (D-CO) estimated potential revenues from an expanded Lease 181 sale would exceed $4 billion, but Norton declined to provide a specific figure. She noted that there would be two sources of revenue from Lease 181 — bonus bids, which she said would be “fairly significant,” and ongoing revenue from production royalties. Norton reported that the federal government received $340 million in bonus bids from the downsized Lease 181 sale that was held in late 2001.

Landrieu pressed for greater federal-state sharing of the revenues from offshore oil and gas production. Even though offshore production is expected to contribute $8.8 billion to the federal coffers in fiscal year 2007, more than four times the revenue from onshore production ($2 billion), coastal states that permit drilling off their shores receive less than 1% of the revenues, while the remainder goes to the federal government, she noted. In contrast, revenues from onshore production are divided 50-50 between the states and federal government.

Under questioning from Landrieu, Norton conceded that Wyoming was likely to receive $1.3 billion in production-related revenue this year, while Landrieu’s state of Louisiana, a major offshore oil and gas producer, would only get about $2.3 million for production conducted in the 8(g) area, which is the first three miles of federal waters. “This discrepancy between the interior states and coastal states…really needs to be fixed,” Landrieu said.

The Louisiana senator also asked Norton what steps her department has taken to implement provisions in the Energy Policy Act of 2005 (EPAct), which call for $1 billion in coastal impact assistance to be provided to the five coastal states that engage in offshore drilling. “We have begun the analysis for those guidelines” to implement the program, Norton said. She further noted that Interior’s Minerals Management Service has redirected $600,000 to get the program off the ground.

Domenici urged Norton to move expeditiously to get the streamlined permitting pilot programs for oil and gas leases up and running. Congress, in EPAct, created a pilot program in seven Bureau of Land Management (BLM) offices in New Mexico, Utah, Colorado, Montana and Wyoming to bring oil and gas from approved lease sites to market sooner by ending months and years of bureaucratic delays related to permitting.

“We want you to move ahead quickly in getting those permits out the door,” he told Norton. He noted the Office of Management and Budget wants the committee to amend EPAct to allow lease rent in those states to go into the Treasury. Congress authorized BLM to keep that money — approximately $22 million annually — to fund the pilot programs. That’s where the money will stay, Domenici said. “The repeal of those provisions won’t take place up here.”

Norton said that BLM has been instructed to move quickly on staffing the agency offices to reduce the backlog of permitting requests.

Sen. Craig Thomas (R-WY) called on Norton to respond to a recent published report that the department has cut back on the number of audits that it carries out on oil and gas leases. Since 1982, she said Interior has collected an additional $2.6 billion in royalties as a result of audits, which are conducted three years after energy production occurs.

Norton said the royalty-in-kind program, whereby producers pay their royalties with product rather than cash, has been “extremely effective” in reducing the department’s need to conduct audits.

The Interior secretary also assured senators that the department has not scaled back its inspections of oil and gas activities. Interior expects to fund BLM at a level that will allow it to conduct 50% more than the 17,000 inspections that were carried out in 2005, she said.

Norton further said the Bush administration continues to support the opening of the coastal plain of the Arctic National Wildlife Refuge, which she called “the largest onshore source” of energy for the country.

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