Independent producers to try to change minds on offshore leasing

Independent producers to try to change minds on offshore leasing

Washington (Platts)--23May2006

Undaunted by bipartisan opposition to offshore drilling in moratorium
areas in virtually every coastal state, the Independent Petroleum Association
of America is "trying to work grassroots efforts to put out our side of the
story," Mike Linn, IPAA chairman said Tuesday.

"It's hard," Linn acknowledged in a briefing with reporters. "We have to
do it from the ground up. We've got a build a consensus," primarily through
press coverage in the affected states.

A measure of the difficulty IPAA faces in winning hearts and minds on the
issue is the 279-141 bipartisan vote in the US House of Representatives last
week defeating an amendment that would have lifted the annual congressional
moratorium. The only Outer Continental Shelf areas open for oil and gas
development are in the Central and Western Gulf of Mexico and off parts of
Alaska's coast.

A second amendment lifting the moratorium to allow only natural gas
development was rejected by a much closer margin, 217-203. If a lessee had a
gas lease and found oil, "it would be hard, but you would have to leave [the
oil] in the ground," Linn said. Technologies are available to "case in" the
oil, he said.

Even if the congressional moratorium was lifted, OCS development would
still be prohibited under a ban imposed by President George H. W. Bush and
extended until 2012 by President Bill Clinton. However, "If you get enough of
a groundswell in the coastal states [supporting drilling], I think the
administration would follow," Linn said.

IPAA officials are concerned that the Senate could follow the House's
lead and bar companies from obtaining new leases if they refuse to renegotiate
existing deepwater leases which lack a price ceiling limiting royalty relief.
The Minerals Management Service has acknowledged that it mistakenly failed to
include a price threshold in the 1998 and 1999 leases.

Linn said investment decisions were made based on the original lease
terms and to retroactively alter the terms would have negative implications
for the companies and their shareholders.

Lee Fuller, vice president of government relations, said the MMS made a
"bad mistake" in failing to include a price threshold, but that insisting
companies renegotiate the leases would also be a bad mistake because it
undermine faith in federal contracts.

--Gerald Karey, gerry_karey@platts.com

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