Washington (Platts)--16Jul2007

Legislation passed by a US House of Representatives committee to
fast-track climate change studies and to roll back sections of the 2005 Energy
Policy Act that accelerated oil and natural gas development on public lands
could cost more than $2 billion over the next five years, the Congressional
Budget Office has estimated.

     While discretionary spending from the bill, HR 2337, could reach $2.6
billion between fiscal 2008 and 2012, the legislation could trim mandatory
spending of $259 million over five years and $431 million over 10 years due to
various fees and repeal of mandatory spending programs, CBO said Friday.

     The bill, introduced by House Resources Chairman Nick Rahall,
Democrat-West Virginia, and passed by his panel and others with jurisdiction
over the issues addressed, is expected to be rolled into a broad energy bill
that is slated for House debate later this month.

     In addition to amending certain sections of the 2005 energy law, the bill
restricts the Interior Department's royalty-in-kind program to filling the
Strategic Petroleum Reserve only, establishes a new fee on non-producing
federal leases, requires increased auditing of oil and gas leases and hikes
civil penalties for violations of royalty rules. The measure also provides
money to study carbon sequestration and wind power and sets up an inter-agency
panel to address the effect of warming on federal lands, oceans and federal
water infrastructure. 

    Climate strategies and systems, particularly the development of the
National Integrated Coastal and Ocean Observation System, account for most of
the projected spending. The inter-agency panel alone could cost $285 million
to develop over the first five years, CBO estimated, while the observation
system is expected to cost $988 million over the same five years.

    Coastal zone management grants as well as state and tribal wildlife grants
would add another $455 million through 2012, CBO said.

     CBO estimated that less than $500,000 annually would be raised by
increasing civil penalties for royalty violations, while the cost of new
federal lease audits would be $100 million over the 2008-2012 period. The
legislation requires the US Minerals Management Service to perform at least
550 audits of oil and gas leases each fiscal year, a mandate that will require
the hiring and training of about 200 additional auditors and supervisors, CBO
noted.

     By repealing a provision in the 2005 law prohibiting the charging of fees
to recover the cost to administer drilling-related permits, the bill could
reduce government spending by $17 million in 2008, and $136 million from 2005
to 2015, CBO estimated.

     CBO said the bill's requirement that MMS could not accept royalty-in-kind
payments unless the royalty oil is needed to fill the SPR, would have only a
"negligible effect" on the government's income. While MMS has touted the RIK
program as allowing the government to get more value for production on federal
lands than it would through cash payments, CBO said that the difference in
collections between the two methods has been "very small--about two-tenths of
one percent over the last three years--after adjusting" for the MMS' spending
to administer the program. Rahall contends the RIK system is fundamentally
flawed and is mismanaged.

		--Cathy Landry, cathy_landry@platts.com