The Republican-led Congress, before turning over the reins to the Democrats, passed 11th hour legislation opening an additional 8.3 million acres in the eastern Gulf of Mexico to oil and gas exploration.
The drilling measure was viewed as a political compromise, wrapped in a broad tax and trade package that the U.S. Senate approved Dec. 9 by a 79-9 vote, just hours after the House of Representatives okayed the legislation.
Earlier versions of the bill pushed by Republicans would have opened offshore areas of the U.S. West and East coasts to exploration drilling. But with the clock ticking down to adjournment of the 109th Congress and no clear consensus, both houses settled for passage of the Gulf of Mexico Energy Security Act of 2006.
Democrats, who mustered enough seats in the November election to take control of Congress next year, largely supported the offshore bill. However, they also are expected to try to repeal oil and gas subsidies.
Gulf Coast states get more royalties
The final bill passed by both houses also provides the Gulf Coast states of Texas, Louisiana, Mississippi and Alabama with a 37.5 percent share of federal royalty revenues from production on outer continental shelf leases. According to congressional estimates, that provision could redistribute about $60 billion in federal leasing fees to the four coastal states over the next 25 years.
On a related issue, Louisiana convinced a federal judge in October to halt future Gulf of Mexico lease sales until environmental damage caused by hurricanes Katrina and Rita could be thoroughly assessed. A portion of royalty revenues that will go to the four states under the new legislation will be used to help clean up the widespread mess.
“I appreciate the commitment by the State of Louisiana to use revenues from these leases to restore coastal wetlands,” President George W. Bush said in a prepared statement following passage of the Gulf security act.
The offshore legislation, which is expected to be approved by President Bush, ends a 25-year drilling ban in deep waters of the U.S. Gulf about 125 miles south of Florida’s Panhandle, but extends a moratorium on drilling in other Florida waters until 2022.
Area believed to hold substantial resources
Geologists believe the new area opened to drilling could hold 1.26 billion barrels of oil and 5.8 trillion cubic feet of natural gas.
“Developing these reliable domestic resources in an environmentally sound manner will help address high energy prices, strengthen our energy security and protect manufacturing jobs,” President Bush said. The new offshore legislation brought an immediate and mixed reaction from various industry trade groups, including the 450-member National Petroleum and Refiners Association.
“While the bill doesn’t open as much acreage to exploration as NPRA and others would have liked, we hope that additional action affecting other OCS areas will eventually take place,” NPRA President Bob Slaughter said, adding that allowing full access to the OCS could bring as much as 633 trillion cubic feet of natural gas to the U.S. domestic market.
Tom Fry, president of the 300-member National Ocean Industries Association, said that while the bill would not solve all of the nation’s energy challenges, “we have at least begun to take a step in the right direction.”
He added: “Congress recognized that the United States has been operating under a flawed public policy for decades that refuses to allow energy supply to keep pace with increasing demand. As a result, we have experienced increasing prices for oil and natural gas as well as an increasing reliance on imported energy.”
Fry noted that with 80 percent of the OCS off limits to drilling, the offshore still accounts for roughly 30 percent of the U.S. oil and natural gas produced each year. “We are the only nation in the world to consistently limit access to our own domestic resources,” he said.
AGL Resources, an Atlanta-based energy services holding company with utility subsidiaries in six states, echoed the concerns of other energy companies responding to passage of the new offshore legislation.
“While we are disappointed that more comprehensive legislation — which would have given states more discretion over resources off their respective coasts — did not pass this term, we are pleased with the results of this measure,” said John Somerhalder, AGL’s president and chief executive officer.
The energy portion of the bill also includes a dozen energy tax incentives, including inducements for renewable energy, marginal oil and gas wells, energy efficiency investments and an extension on the 54 cents a gallon tariff on ethanol imports.
Other provisions of the bill would allow independent oil and gas producers to write off depletion costs at a higher level for the 2006 and 2007 tax years, extend the existing research and development tax credit for qualified energy projects through 2007, increase credit rates and simplify the research and development credit for 2007, and modify the coke and coke gas production tax credit.
