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Vol. 12, No. 27 Week of July 08, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

House acts on BB leasing, OCS royalties

Federal bill forces more study in Alaska’s North Aleutian basin, renegotiation of oil and gas lease royalties; Bush threatens veto

Rose Ragsdale

For Petroleum News

The U.S. House of Representatives passed an Interior Department budget for 2008 June 28 that could negatively effect oil and gas development.

The appropriations bill passed 272 to 155. Provisions in the legislation would delay planned exploration and production in Bristol Bay and force renegotiation of 1998-99 oil and gas leases that omitted royalty price thresholds.

The bill could delay oil and gas leasing in Bristol Bay by requiring further environmental impact studies.

The area, scheduled to be opened for leasing in the Minerals Management Service’s five-year lease sale plan, is estimated to hold approximately 23 trillion cubic feet of natural gas reserves, and millions of barrels of oil.

Bristol Bay, which is in Alaska’s North Aleutian Basin, is an important commercial fishing area with some of the world’s most coveted salmon runs. It was off limits to oil and gas leasing until January when President Bush lifted the restrictions.

Critics of the plan say the $7.5 billion in anticipated revenue from oil companies could be a poor trade-off for the $2.1 billion annual commercial fishing industry in Bristol Bay.

The bill calls for the MMS, the U.S. Geological Survey, the General Accounting Office and several other federal agencies to conduct in-depth analyses of exploration in the basin.

Price threshold omissions costly

House Democrats say the royalty price threshold omissions are costly mistakes.

The GAO estimates some $1 billion in royalties have already been lost, and the price threshold omissions could cost taxpayers another $9 billion in future royalties.

Six companies, including BP PLC, Royal Dutch Shell, ConocoPhillips and Marathon, have agreed to pay royalties on the leases for production from October 2006, but they represent only a fraction of the total number of lease holders.

About 40 companies, controlling 80 percent of total offshore oil and gas production, haven’t agreed to renegotiate their leases. They include Exxon Mobil Corp, Total SA, Chevron Corp. and Anadarko Petroleum Corp., according to the Interior Department.

The Senate Appropriations Committee voted against a similar provision in its Interior budget plan a few days before the House vote.

President Bush also has threatened to veto the bill, saying the proposed plan exceeds spending limits, and he is opposed to forced lease renegotiations.

Under the appropriations bill, companies that refused to renegotiate their leases wouldn’t be eligible for new federal lease sales.



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MMS plan for OCS lease sales approved

Meanwhile, Interior Secretary Dirk Kempthorne approved the MMS 2007-12 Outer Continental Shelf Oil and Gas Leasing Program June 29.

The program, which became effective July 1, has scheduled 21 lease sales in eight planning areas. MMS estimates that the program could produce 10 billion barrels of oil and 45 trillion cubic feet of natural gas over 40 years, generating almost $170 billion, in today’s dollars, in net benefits for the nation.

“This energy production will create jobs, provide greater economic and energy security for America and can be accomplished in a safe and environmentally sound manner,” Kempthorne said. “The approval and implementation of this new program mark the culmination of almost two years of extensive consultation by the Department of the Interior with coastal states, the public at large, the environmental community and the natural gas and oil industry. The new program balances the critical need for domestic energy resources with protection of human, marine and coastal environments.”

The program that Kempthorne approved is identical to the proposed final program announced in April. Twelve sales are slated for the Gulf of Mexico, eight off the coast of Alaska and, at the request of the Commonwealth of Virginia, one in the Mid-Atlantic Planning Area, which would be at least 50 miles off the coast of Virginia. This sale would only take place if the presidential withdrawal is modified and the congressional moratorium discontinued in the Mid-Atlantic Planning Area.

The Interior Department plans to conduct additional environmental reviews and consultations before deciding whether to proceed with each sale.

A table listing the schedule of 2007-12 oil and gas lease sales, maps of the program areas and the complete final program are available online at: http://www.mms.gov/5-year.