OFFSHORE DRILLING:

Senate panel votes to repeal mandatory royalty waivers

The Senate Energy and Natural Resources Committee today approved the repeal of mandatory royalty waivers, also called "royalty relief," required under a 2005 energy law for certain offshore oil and gas production.

Chairman Jeff Bingaman's (D-N.M.) plan would leave it to the Interior Department to decide whether to offer royalty relief. It passed, 12-11, along party lines, with Democrat Mary Landrieu of Louisiana, an oil and gas industry ally, voting with Republicans to oppose the plan.

The 2005 energy law requires royalty relief for deepwater Gulf of Mexico oil and gas production and gas from deep wells in shallow gulf waters. Mandatory royalty relief is specifically applied to deepwater lease sales for water depths greater than 400 meters occurring five years after the law's enactment and indefinitely for deep gas in the shallow waters.

Bingaman said that decisions on providing royalty relief as part of lease sales should be left up to the Interior secretary, which he noted was the policy before the Energy Policy Act of 2005.

"We should not mandate what the secretary does," Bingaman said, noting that a senior Interior official who served under President George W. Bush had sought repeal of mandatory royalty relief.

But some Republicans attacked the provision, alleging that it could remove incentives needed to spur domestic energy production.

Sen. Lisa Murkowski (R-Alaska), the ranking member, said she believed the Obama administration would not offer the incentive. "It is almost certain that the Interior Department will use this authority to cancel royalty relief," she said.

But Sen. Maria Cantwell (D-Wash.) said the amendment would help Interior Secretary Ken Salazar carry out reforms of the Interior royalty programs. She also said oil companies do not need the incentive.

"There is one industry that does not need an additional bailout and that is the oil industry," Cantwell said.

The amendment would not apply to pending lease sales for which Interior's Minerals Management Service has issued a "final notice of sale."

Royalty relief was first offered under a 1995 law as an incentive for the industry to undertake costly projects in deep gulf waters with abundant reserves.

The Interior program conditions royalty waivers on oil and gas prices remaining below certain limits, called price thresholds, but these price triggers were not included in deepwater leases issued in 1998 and 1999.

The amendment was added to a broad-based energy bill the committee plans to wrap up tomorrow.

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