June 19, 2006

Lawmakers reach deal on offshore drilling bill

By Tom Doggett

WASHINGTON (Reuters) - Republican and Democratic lawmakers
on the House Resources Committee have reached a compromise on
legislation that would allow oil and natural gas drilling in
more offshore waters, the panel's chairman said on Monday.

The bill would allow energy companies to search for oil and
gas beyond 50 miles of the coastlines of states where drilling
activity is now banned, unless a state acts to continue the
drilling prohibition.

The drilling ban would continue within the first 50 miles
offshore, unless an affected state decides to allow energy
exploration with the express approval of its legislature and

Resources Committee Chairman Rep. Richard Pombo of
California criticized the current drilling bans because they
don't allow states that want to develop energy resources off
their coasts the ability to do so, or give states that want to
continue offshore production any assurances they can for the
long term.

He said the legislation "creates a flexible framework that
balances the interests of different states by putting the
states themselves in the driver's seat with unprecedented
authority over their coastal resources."

The committee is set to vote on the bill on Wednesday.

Under the legislation, states would have one year to decide
whether to allow or deny natural gas drilling in the area from
50 miles to 100 miles off their shores. If a state takes no
action, the federal government could lease offshore tracts for
natural gas, but not crude oil, drilling.

States would have much longer until June 30, 2009 to enact
bans on oil drilling from 50 miles to 100 miles offshore.

Drilling would be prohibited within 25 miles of the
coastline of a neighboring state that does want drilling in its
adjacent waters.

To encourage drilling, states would get a bigger share of
royalties energy companies pay the government on their oil and
gas production.

Currently, only the central and western Gulf of Mexico and
limited areas off Alaska are open to drilling.

The committee's action would allow companies to search for
gas in the Atlantic and Pacific Oceans and the eastern Gulf of
Mexico off the Florida coast.

Environmental groups slammed the legislation.

Athan Manuel with the Sierra Club said the bill was "a
product of secret backroom deals that undercuts decades of
strong coastal protections."

He noted that similar bills to expand offshore drilling
have been voted down by the full House of Representatives. Such
drilling measures also face strong opposition in the Senate.

Energy companies have complained for years they need access
to the oil and natural gas in federal waters where drilling is
banned to get the supplies needed to meet growing U.S. energy

The Interior Department estimates the areas subject to
drilling bans hold between 94 and 164 trillion cubic feet of
natural gas and 21.25 and 40.6 billion barrels of oil.

The legislation also gives the U.S. Interior Secretary
authority to renegotiate lease contracts with energy companies
that signed contracts in the late 1990s that accidentally left
out language ending royalty relief when the price of oil
averaged $40.50 a barrel and gas costs $6.75 per thousand cubic

Energy companies that refuse to renegotiate those
contracts, and agree to pay billions of dollars in royalties,
would have to pay a new fee of $9 per barrel on oil and $1.25
per thousand of cubic feet of gas produced in the relevant
leased tracts in the Gulf of Mexico.