In a press release issued June 2, 2010, the National Ocean Industries Association (NOIA) warns that President Obama's moratorium on exploratory wells in the Gulf of Mexico and new deepwater drilling could cost Americans thousands of jobs and the government billions of dollars in revenue.  NOIA also suggests that the President’s actions may end up increasing U.S. dependence on foreign oil, urging the government to take “less harmful solutions such as increased inspection and recertification of equipment.”  According to NOIA, the offshore industry provides approximately 200,000 jobs in the Gulf of Mexico and an average of $13 billion a year in government revenue.

Sen. Mary Landrieu (D-LA) is urging the Obama administration to end the shallow-water component of the recently issued moratorium on oil drilling in the Gulf of Mexico.  Sen. Landrieu argues that "[t]he inspections and regulations [for shallow-water drilling] need to be different than [for] deep water."  She also introduced a new bill (the RESPOND Act) that would begin revenue sharing with energy-producing Gulf states immediately.  Such revenue sharing, which redirects offshore drilling royalties from the federal treasury to state coffers, has been a hot topic in recent months.  For more information, see yesterday's E&E GreenWire [subscription required].

The Obama Administration announced yesterday that the Minerals Management Service will be reorganized into two agencies. According to Secretary of the Interior Ken Salazar, one entity will be responsible for approving oil and gas leases and managing the federal royalties program, and a second body will have responsibility for safety in exploration and production operations. The Washington Post provides further information.

On April 20, 2010, Senator Landrieu (D-LA) spoke out in favor of coastal states receiving royalties for offshore drilling activities in federal waters off their shores. Earlier this week, Senators Bingaman (D-NM), Dorgan (D-ND), and Rockefeller (D-WV) sent a letter to their colleagues voicing their strong opposition to such revenue sharing. In her statement, Senator Landrieu explained, "if there's no drilling, the interior states get no money," adding that, "there is not going to be any drilling unless there is revenue sharing." See yesterday's story in EnergyWashington [subscription required] for more information.

Today, Senators Bingaman (D-NM), Dorgan (D-ND), and Rockefeller (D-WV) expressed their opinion that redirecting revenues from energy development on the Outer Continental Shelf from the U.S. Treasury to coastal states should not be allowed.  In a letter to their colleagues, the Senators noted their strong opposition and reminded their fellow Senators that state revenue sharing amendments were defeated twice in 2009.  They further argue that coastal states already receive significant revenues from offshore drilling activities, the revenues from which they estimate will total about $6 billion in 2010.  See today's story in Greenwire [subscription required] for more information.

Reuters reports that the Interior Department will study the royalty collection systems of other nations as part of its effort to ensure that the federal government maximizes royalty revenue, including royalties from offshore production.  This new study follows a 2008 Government Accountability Office report that found the United States gets lower returns on oil and gas leases than other countries.

On the heels of the release of the five-year offshore drilling plan, Rep. Edward Markey (D-MA) announced last week that he plans to re-introduce legislation designed to eliminate royalty relief for certain deepwater leases issued between 1996 and 2000.  Similar to bills considered by the House in the past, the bill would allow companies to choose whether to continue to drill in these existing leases, or bid for new leases opened for drilling under the five-year plan.

Representative Bob Goodlatte (R-VA) and six other Virginia congressmen jointly introduced H.R. 4942, the Virginia Access to Energy Act, last week.  If enacted, the legislation would require U.S. Secretary of the Interior Ken Salazar to conduct OCS Lease Sale 220 no more than one year after Virginia’s governor requests that the sale be conducted.  The bill also would prohibit oil and natural gas leases within 50 miles of Virginia’s coastal zone as well as any that conflict with military operations.  The funds raised by the lease sale and royalties would be divided equally between the U.S. Government and Virginia, with the federal government’s share going towards national debt reduction and an Alternative Energy Trust Fund.

Eighty-Eight House Republicans last week sent a letter to Interior Secretary Ken Salazar, voicing displeasure with the Secretary's recent decision to discard the 2010-2015 OCS lease plan and instead implement the next Five-Year Plan starting in 2012.  The House Republicans are characterizing this two year delay in issuing a new plan the "Obama Moratorium," and assert that it directly conflicts with American public opinion, which favors offshore drilling.  
 
Meanwhile, a number of Senate Democrats from coastal and Great Lakes states earlier this week delivered a letter to Sens. John Kerry (D-MA), Lindsay Graham (R-SC) and Joe Lieberman (I-CT), arguing that pending climate change legislation should not be accompanied by measures that would grant "unfettered access" of the OCS to oil and gas interests.  Citing environmental concerns over oil spills and  potential turf conflicts between E&P operations and the Department of Defense's training zones, the letter goes on to argue against a proposal that revenues from the new OCS leases be shared with the impacted coastal states, and that any opening up of the OCS for drilling should be accompanied by a reform of the leasing process.

Senators John Kerry (D-MA), Lindsey Graham (R-SC) and Joe Lieberman (I-CT) have reportedly drafted a provision in the yet-to-be-released climate and energy bill that proposes giving a share of the revenues from offshore oil and gas production to coastal states that agree to allow these activities in their waters. If the bill is passed, coastal states would receive one quarter of the revenue; ten percent would go to the Land and Water Conservation Fund; and the federal government would allocate the remaining 65 percent to deficit reduction. See E&E Daily [subscription required] for more details.

Yesterday Gov. Bob McDonnell (R-VA) released a statement praising the oil and natural gas lease sale recently concluded  by MMS  for offshore lands in the Gulf of Mexico. In an interview with the Associated Press (via the Hampton Roads Pilot) today, Gov. McDonnell suggested that in light of such successful sales, the planned lease sale off the Virginia coast should be expanded. Gov. McDonnell noted that the oil and gas lease sale acreage is artificially constrained due to the shape of Virginia’s coastline. According to the article, Sen. Mark Warner (D-VA) also  previously has supported expanding the lease area.

Sen. Lisa Murkowski (R-AK), ranking member of the Energy and Natural Resources Committee, has prepared a discussion draft of a bill that would extend drilling in the eastern Gulf of Mexico, authorize drilling in the Arctic National Wildlife Refuge, establish royalty revenue sharing with coastal states that permit offshore drilling, and streamline offshore environmental review and permitting procedures.  Sen. Murkowski believes that the expansion of domestic drilling should accompany any new climate legislation Congress considers.

On Monday, the Virginia Senate passed HB 756, a bill that apportions future state revenues  gained from offshore oil and natural gas leases.  The bill mandates that 70% of any state revenues from offshore E&P must go to Virginia’s Transportation Trust Fund, 20% to the Virginia Coastal Energy Research Consortium, and 10% for local improvements to infrastructure and transportation.  The Virginia House of Representatives passed HB 756 earlier this month.  Virginia's new governor, Bob McDonnell, has expressed support for offshore oil and gas E&P.

On Tuesday National Ocean Industries Association President Tom Fry released a statement commending the Virginia Senate’s support for future offshore energy development. In his statement, Fry said that the vote “demonstrates a strong bipartisan commitment by the Commonwealth to allow OCS exploration off its coast and actively work with Congress and the Obama Administration to move forward with OCS Lease Sale 220.”  Fry went on to note that offshore leases in Virginia could offer “new jobs, new federal and state revenue, and new energy for America.”

DOI Secretary Ken Salazar and MMS Director Liz Birnbaum announced yesterday that MMS collected more than $157M through aggressive enforcement actions in calendar year 2009.  Of this sum, $64M was collected through enforcement activities including audit and compliance programs; more than $34M was collected through automated detection systems, including interest on late payments; and more than $58M was collected through follow-up enforcement actions including civil penalties, negotiated settlements, and other methods to collect royalties.  In the announcement, Director Birnbaum stated that MMS intends to "collect every penny that is due to taxpayers" through future enforcement efforts.

President Obama's recently released budget proposes $364.8 million in funding for MMS in fiscal year 2011.  This funding package includes $3.5 million to continue development of the agency's Outer Continental Shelf renewable energy program, adding to the $20.4 million appropriated in FY 2010.  The budget request also contemplates the phase out and termination of the Royalty-in-Kind program.

Reps. Ed Markey (D-MA), Chairman of the House Select Committee on Energy Independence and Global Warming, and Chris Van Hollen (D-MA) introduced a bill this week, the "Royalty Relief for Consumers Act of 2010,"  that seeks to recover up to $54 billion from companies producing in deep waters in the Gulf of Mexico between 1996 and 2000, effectively overturning the Fifth Circuit's decision in Dep't of Interior v. Kerr-McGee, which was recently denied cert by the Supreme Court.  The House has approved similar versions of the bill in 2006, 2007 and 2008, but it has yet to be enacted into law.

Secretary of the Interior Ken Salazar announced yesterday that DOI will begin reviewing proposals to conduct seismic studies of the Atlantic OCS.  According to statements by Salazar at yesterday's Platts Energy Podium, Interior will open a 45-day public comment period this Thursday, January 27, on the environmental impact of the proposed studies, which will then be used in reviewing specific seismic study proposals.  Seismic studies are an important first step in considering oil and gas exploration off the Atlantic coast.  In a related development, Salazar also pledged broader reforms of leasing programs, suggesting that royalty rates for onshore oil and gas leases may be increased.  The Houston Chronicle has more details.

Earlier today the Supreme Court denied the government's petition of certiorari in Dep't. of  Interior v. Kerr-McGee Oil and Gas Corp. (Docket 09-54), an appeal of a Fifth Circuit ruling earlier this year that held the Deepwater Royalty Relief Act of 1995 did not authorize price thresholds in deepwater oil and gas leases issued between 1996 and 2000.

[Note: The Supreme Court's docketing sheet indicating denial of certiorari is a large document and may take time to download.]

In a very significant development, DOI Secretary Ken Salazar announced on September 16, 2009 that he will be "phasing-in termination of the royalty-in-kind program and an orderly transition over time to a more transparent and accountable royalty collection program."  Salazar made the announcement in his testimony before the House Natural Resources Committee, which convened to discuss Committee Chairman Nick Rahall's proposed legislation that would create a new Interior agency to handle onshore and offshore lease sales, inspection, enforcement, and revenue collection, as well as an overhaul of the federal royalty program.  Salazar's announcement comes on the heels of an August 2009 GAO report that found MMS was losing millions of dollars in royalty revenue.  The royalty-in-kind program also made headlines in June 2008 when reports surfaced of MMS employees accepting gifts from oil and gas companies and  abusing drugs and alcohol .  In his testimony, Salazar told the House Natural Resources Committee that, "The royalty-in-kind program in my view has been a blemish on the department."

In a August 2009 report released yesterday, the Government Accountability Office (GAO) found that MMS does not provide reasonable assurance that it is accurately and promptly identifying and collecting royalty-in-kind gas imbalances.  As a result, GAO estimates that the agency is losing millions of dollars.  In its report, the GAO cites several reasons why MMS is forgoing these revenues, including that the agency lacks the information necessary to calculate the full amount of revenues due, and that rather than compelling companies to document production and deliveries in a consistent format, MMS analysts spend time gathering and reformatting data instead of identifying and collecting on imbalances.

The House Committee on Natural Resources will be considering new legislation aimed at offshore energy programs.  Chairman Nick Rahall (D-WV) announced that the committee will hold hearings on September 16 and 17 to consider H.R. 3534, a bill Rahall introduced yesterday, based on draft legislation circulated earlier this year.  The Chairman's bill proposes a new Interior agency that would handle onshore and offshore lease sales, inspection, enforcement, and revenue collection, as well as an overhaul of the federal royalty program. 
 
In addition, the Energy and Mineral Resources Subcommittee held a hearing today on H.R. 2227, a bill sponsored by Neil Abercrombie (D-HI), as well as over 30 Republicans and conservative Democrats.  The bill also addresses the federal royalty program and proposes that federal revenues be shared with coastal states that have offshore production.  Under the bill, 30% of royalty revenues would go to states, and the remaining 70% would go towards an extension of renewable energy tax credits, carbon sequestration, and nuclear energy.
 
Both bills are available on Thomas.gov.

Yesterday, freshman Alaska Senator Mark Begich (D) called for ratification of the Law of the Sea Treaty and introduced a package of seven bills addressing a variety of Arctic policy issues.  The energy and shipping related measures in the package include:
 
Arctic OCS Revenue Sharing Act (S. 1560) - gives Alaska natives the same 37.5% share of royalties from offshore oil and gas production in federal waters that Gulf of Mexico states currently receive.  This is similar to the measure introduced by senior Alaska Sen. Lisa Murkowski (R) last week.
Arctic Climate Change Adaptation Act (S. 1566) - provides funding for Alaskans to adapt to the impacts of climate change, including clean energy development.
Arctic Ambassador Act (S. 1563) - creates a new U.S. Ambassador to the Arctic Council.
Arctic Marine Shipping Assessment Implementation Act (S. 1564) - provides funding to replace the U.S. icebreaker fleet and build new forward operating Coast Guard air bases, as well as other measures to ensure safe and reliable maritime transportation in the Arctic region.
Arctic Oil Spill Research and Recovery Act (S. 1561) - calls for more research to improve oil spill prevention and response in the Arctic.
Arctic Science, Coordination and Integration Act (S. 1562) - requires a new study to create a comprehensive strategy to coordinate Arctic research and make recommendations to Congress. 
 
The bills are available through Thomas.  You can view Sen. Begich's press release here.

In a press release issued yesterday, Senator Lisa Murkowski (R-AK) announced the introduction of the Domestic Energy Security Act (S. 1517), which would authorize revenue sharing for any coastal state that allows new oil and gas exploration. Specifically, the legislation would grant coastal states a 37.5% share in revenues generated from oil and natural gas production in federal waters off their shores. In announcing her support as a co-sponsor of the legislation, Senator Mary Landrieu (D-LA) stated, “As our nation weans itself off foreign oil and transitions to the next generation of energy, we need OCS production in U.S. waters to get us there. Coastal states will play a key role in building that ‘energy bridge’ if Congress can guarantee them their fair share of revenue and conservation royalties."
 
The bill also would permit leasing in the eastern Gulf of Mexico to within 45 miles of Florida's coast and in the Destin Dome area, which reaches to within 10 miles of the Florida coast near the panhandle.  
 
In response, Sen. Bill Nelson (D-Fla.) denounced the new bill, calling it an oil industry bailout. Nelson said, "it's Alaska and Louisiana's senators' plan to boost their own revenues in tough economic times. But even in the toughest of times, there are some things states shouldn't sell out, like Florida's economy and environment.''

On Monday the Department of Justice filed a Petition for Writ of Certiorari with the Supreme Court in Department of the Interior v. Kerr-McGee Oil and Gas Corp., seeking to challenge a Fifth Circuit ruling earlier this year that held that the Deepwater Royalty Relief Act of 1995 did not authorize price thresholds in deepwater oil and gas leases issued between 1996 and 2000.  Respondents have until August 12 to reply. View the Supreme Court docket here.

In a close vote today, the Senate Committee on Energy and Natural Resources added an amendment to the proposed energy bill that would repeal mandatory royalty relief for oil and gas leases in deep waters off the coasts of the U.S. The  amendment gives the Secretary of the Interior discretion to grant or deny royalty relief  below certain price thresholds. As has been the case throughout  much of the debate on offshore oil and gas drilling, Democrats argued that incentives for oil and gas companies are unnecessary, while Republicans contended that the U.S. needs to increase domestic supplies to end dependence on foreign oil. See yesterday's New York Times for more details.

Today the Senate Energy and Natural Resources Committee approved Senator Byron Dorgan's (D-ND) amendment to the broad energy bill the Committee is currently marking up.  Dorgan's amendment proposes opening oil and gas leasing in the eastern Gulf of Mexico up to 45 miles from Florida's coast. The passage of Dorgan's proposal would end a drilling ban across most of the eastern Gulf waters, including in an area known as the Destin Dome which reaches within 10 miles of the Florida coast, and is believed to hold as much as 1 trillion cubic feet of natural gas. Senator Bill Nelson (D-FL) and others voiced strong opposition to the plan, arguing that it would interfere with military training. Further, Senator Nelson threatened to filibuster if necessary to block the effort. 

Separately, the Committee rejected Senator Mary Landrieu's (D-LA) revenue sharing proposal, which would have distributed 37.5% of the revenues collected from oil and gas development in the eastern Gulf to nearby states, directed 50% of the revenues toward federal deficit reduction, and 12.5% to the Land and Water Conservation Fund. In particular, Landrieu's plan would have extended a 2006 Gulf leasing law that established a revenue sharing program for several Gulf Coast states to Alaska and other states that may have offshore leasing in the future. Find further information in E&E's Greenwire. [Subscription required]

A staff discussion draft bill circulating through the House Natural Resources Committee seeks to make major structural and substantive changes to the Department of Interior's (DOI) offshore leasing programs. The draft bill, tentatively titled the "Federal Lands and Resources Energy Development Act of 2009," seeks to respond to major criticism that DOI and the Minerals Management Service faced last year on a variety of issues. The changes it proposes to make include: (1) consolidating all offshore and onshore energy leasing and revenue offices, including offshore renewables, under a new "Office of Federal Energy and Minerals Leasing," which would be headed by a new political appointee; (2) eliminating the royalty-in-kind program; (3) stricter ethics rules for  DOI  officials; (4) creating new "Regional OCS Councils" to oversee strategic planning; (5) authorizing DOI to issue new "diligent development" regulations for offshore leases; (6) repealing deepwater royalty relief; and (7) other changes to royalty collection procedures, including new criminal sanctions.

The draft bill is currently being reviewed by DOI. It is possible that the bill or sections of the bill may be combined with the House Energy and Commerce Committee's comprehensive energy and climate change bill, which won approval from that panel late last week.

Yesterday, U.S. Reps. Tim Murphy (R-PA) and Neil Abercrombie (D-HI) and a group of bipartisan House members introduced the American Conservation and Clean Energy Independence Act, H.R. 2227. The legislation would approve the 2010-2015 OCS Oil and Gas Leasing Program adopted during the Bush administration and expedite the leasing process for new exploration and production. Under the provisions of the bill, within 30 days of the bill's passage the Interior would be required to conduct a lease sale in each OCS planning area in which there is commercial interest in purchasing federal oil and gas leases for production. The agency would then be required to hold lease sales every 270 days thereafter upon a determination by the Secretary that commercial interest exists in a planning area.

In what would amount to a significant development if the legislation is passed, it would extend the seaward boundary of coastal states to 12 nautical miles from the current 3 miles applicable to most states. However, it appears that the federal government will maintain leasing and regulatory authority over “Federal oil and gas mineral rights” in the 3- to 12-mile zone. In an apparent effort to gain support from critical coastal state members, the legislation grants states the right to “exercise all of the sovereign powers of taxation” in this zone.

Importantly, the legislation would allocate 30% of the expected royalties generated from the exploration and production in the new 12-mile zone to producing coastal states.  The U.S. Treasury would receive 10% of the expected revenues, and the remainder, in the ballpark of $1 trillion according to the summary of the bill, would be allocated to offset the costs of the renewable energy tax incentives and credits, and promote clean energy technology development, environmental restoration and protection, and energy efficiency.  According to the section-by-section analysis of the legislation available on Rep. Murphy’s website, states also could receive royalties from renewable energy projects up to the 12-mile boundary.  However, a close reading of the legislation indicates that this is not the case, as royalties are derived only from oil and gas activities in that zone.

A summary of the legislation is here. Rep. Murphy's press release can be found here.

No word yet on the bill's viability, but it seems to us that there is increasing recognition on Capitol Hill that a balanced energy portfolio, including traditional sources of energy, is in the nation's best interest … and is likely to obtain the most support on both sides of the aisle. 

On Thursday April 2, 2009, the U.S. Senate rejected an amendment sponsored by Senator Mary Landrieu (D-LA) to the annual budget blueprint (S. Con. Res. 13) that would have given states half of the revenues from offshore oil and gas leases, by a vote of 37-60.  Currently, coastal states receive approximately 37.5% of the revenues.  Included in the amendment was a provision for revenue sharing for leases in newly opened parts of the Outer Continental Shelf where adjacent states currently have no entitlement to revenues. 
 
After Landrieu's amendment was rejected, the Senate approved by unanimous consent an amendment offered by Senator Kay Bailey Hutchison (R-TX).  The Hutchison amendment adds language to the budget bill encouraging expanded offshore oil and gas production as a means to reduce U.S. dependence on foreign energy imports.

This week, Gulf of Mexico coastal states and communities will receive over $25 million from bonus bids and rental fees associated with 2007-08 OCS oil and gas lease sales.  Texas, Alabama, Louisiana, and Mississippi will all receive a portion of funds associated with these sales pursuant to the 2006 Gulf of Mexico Energy Security Act (GOMESA).  The bulk of the money was received from the March 19, 2008 sale.  By law, some of these funds must be used for coastal protection activities, such as mitigating damage to wildlife and natural resources; carrying out a federally-approved marine, coastal, or comprehensive conservation management plans; and mitigating the impact of Outer Continental Shelf activities.  A complete list of disbursements can be found here.  For more information, see the Department of the Interior's news release.

Senator Mary Landrieu (D-LA) told Environment & Energy Daily [subscription required] that she plans to work with senators from other energy-producing states to address "excessive" increases in taxes and other costs associated with oil and gas production, including production on the OCS in the Gulf of Mexico, in the Obama Administration's proposed budget. Sen. Landrieu noted that raising costs of production could limit development of domestic energy supplies; however, her stance on these provisions places her at odds with Rep. Nick Rahall (D-WV), Chairman of the House Natural Resources Committee, who already endorsed this part of the budget.

According to a statement earlier this year by Jack Gerard, President of the American Petroleum Institute, "[a] full 70 percent of Virginians in a July poll supported increased offshore development."  Currently, the lease sale of a portion of the OCS offshore Virginia is set for 2011.  Now, as the gubernatorial race in Virginia heats up, the issue of offshore drilling has become a major point of contention among the candidates. 
 
In 2008, following the expiration of the presidential and congressional moratoria on offshore drilling, Governor Tim Kaine (D) wrote to the Bush Administration requesting a cautious and thoughtful approach to offshore drilling including a delay.  The U.S. Minerals Management Service rejected that request.  Kaine then penned a second letter in February 2009, this time to new Secretary of the Interior, Ken Salazar, in which he urged Salazar to take a slow approach to opening the outer continental shelf to offshore drilling.
 
Kaine's efforts to delay offshore development of oil and gas resources are becoming an important issue between the candidates in the gubernatorial race.  Candidate Bob McDonnell (R) has voiced a strong support for offshore drilling and is opposed to any delay.  In his own letter to Salazar, McDonnell wrote, "[t]he delay advocated by Governor Tim Kaine would eliminate Virginia's ability to start early, and place the commonwealth into the same five-year program underway for other Atlantic states."  Other Virginia gubernatorial candidates, Terry McAuliffe (D), Brian Moran (D), and Creigh Deeds (D), have sided with Kaine.  McAuliffe explained in a letter to McDonnell that stimulation of the Virginia job sector should be in green and renewable jobs, and that drilling in the offshore area of Virginia should be off limits.  Moran has taken a hard stance against offshore drilling in general.  Deeds echoed McAuliffe's sentiment on job stimulation in the green sector over offshore drilling.  The Northern Virginian Daily and Energy Current provide additional coverage.
 
The 2011 Virginia lease sale is the only lease sale currently on the table for the East Coast.  As currently envisioned, drilling would be limited to a wedge-shaped area of about 3 million acres.  Situated 50-140 miles offshore, any platforms would be far enough offshore as to be invisible from the beaches.  MMS has estimated that the net revenues from drilling offshore Virginia could be as much as $340 million, and that there could be as much as 130 million barrels of oil and 1.4 Tcf of gas in the area.  Absent a federal bill providing otherwise, the state of Virginia would not receive any money paid by oil and gas companies in connection with any offshore drilling.  The Virginian-Pilot provides additional information.

Usually when top executives from the oil and natural gas industry testify before a congressional committee, they come expecting to hear an ear full.  At today's House Natural Resources Committee hearing on OCS drilling, however, the executives walked away with relatively few scars.  They even agreed with Committee Chairman Nick Rahall (D-WV) on one point -- that the nation is sorely in need of a comprehensive energy policy that considers the panoply of available energy resources, including solar, wind, and biofuels.  Despite recognizing the need for a comprehensive approach, it was clear that the industry representatives favored additional access to OCS resources.  In his prepared statement, the Chairman noted the benefits of offshore drilling, including jobs and tax income, but also stated that "the amount of additional oil that we could drill offshore is a drop in the bucket of what we need to sustain our economy and meet our energy needs."  Citing the American Petroleum Institute's ("API") own figures, he added that even in the most optimistic scenario, opening the entire OCS to drilling would "provide no more than 5% of our total daily energy needs, and displace only 8% of our oil imports" by 2030.   
 
Today's panel included officials from ExxonMobil, BP, Shell, Chevron, Devon (representing API), and the Institute for 21st Century Energy, an affiliate of the U.S. Chamber of Commerce.  Each panelist generally agreed that additional OCS drilling will promote energy security, create jobs, and generate more revenue for the U.S. Treasury.  Moreover, when the issue arose, each panelist appeared to support revenue sharing with states that host drilling operations off their coastline.  Perhaps one of the most prominent themes of the day was that the resource data currently held by the government to establish projections for OCS oil and gas inventory is woefully inadequate.  Members of the Committee were repeatedly reminded that current resource projections in the Gulf of Mexico are roughly eight times greater than were originally forecasted.  In short, the executives believe that the projected inventories in the OCS areas formerly under moratoria would be much higher if companies were allowed to use current technology to evaluate these areas.  Some panelists even expressed a willingness to fund these endeavors, but are hesitant to do so until the federal government provides greater assurances that these areas would be open to development. 
 
Several members of the Committee inquired as to how much money the companies were devoting to the development of renewable fuels.  While the panelists responded to this inquiry, Rep. Lois Capps (D-CA) requested these figures to be provided in writing to the Committee.  A few members, however, did suggest that the companies were spending an inadequate amount of money on developing alternative energy resources in light of their profit figures for 2008.  Rep. John Sarbanes (D-MD) also noted that he is worried that the combination of low prices and additional OCS drilling may inhibit the nation's ability to adequately develop renewable forms of energy. 
 
Another issue raised during the hearing was Interior Secretary Salazar's recent decision to delay the OCS planning process by 180 days.  As expected, the companies did not favor this decision.  The Ranking Member on the Committee, Doc Hastings (R-WA) took this sentiment a bit further, noting that the Secretary's decision amounts to a reinstatement of the ban on drilling.  Rep. Hastings also added that the government needs to examine what it can do to facilitate the development of leases.  Rep. Henry Brown (R-SC) further examined the permitting issue, asking the panelists to compare the process in the U.S. with other countries.  The panelists appeared to agree that the permitting process, at least in the Gulf of Mexico, is comparable with other countries.  The Alaska permitting process does appear, however, to be more difficult, according to the executives.
 
While this hearing concluded the Committee's first series on OCS drilling matters, we expect the Chairman and others to call for additional hearings to discuss royalties, leasing, and other related issues.

The U.S. Court of Appeals for the Fifth Circuit today ruled in the matter of Kerr-McGee v. Allred that the Deepwater Royalty Relief Act of 1995 did not authorize Congress to include price thresholds in oil and natural gas leases issued between 1996 and 2000. In a unanimous opinion, the court found that Congress clearly intended to provide volumetric royalty relief to producers, noting such relief could not be reduced based on the price of the commodity. While the court’s ruling was clear, there still remains considerable debate in Congress as to the intent of the statute.  This ruling has tremendous implications for a related matter involving deepwater leases issued in 1998 and 1999 that did not contain price thresholds. In the wake of the court’s ruling, several members voiced their disapproval and vowed to revisit the issue.