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# Legislative Bulletin........................................................June 26, 2008

**Contents:**

**H.R. 6251**---Responsible Federal Oil and Gas Lease Act

H.R. 6251---Responsible Federal Oil and Gas Lease Act (*Rahall, D-WV*)

**[Order of Business]{.underline}**: The bill is scheduled to be
considered on Thursday, June 26^th^, under a motion to suspend the rules
and pass the bill (therefore allowing no amendments to the bill,
requiring a two-thirds vote for passage, and waiving all points of
order). Normally, suspensions are not in order on Thursdays, therefore a
motion to suspend the rules and pass H.R. 6251 will only be in order if
the House passes [H.Res.
1304](http://thomas.loc.gov/cgi-bin/query/z?c110:H.Res.1304:/), a
special rule providing for the consideration of the energy transit bill
(H.R. 6052) and making in order (at any time on the legislative day of
Thursday, June 26, 2008) motions to suspend the rules relating to
[separate]{.underline} measures concerning the:

\--Commodity Exchange Act and energy markets (an anti-oil-investors
bill); and

\--Issuance of oil and gas leases on federal lands or waters (a
"use-it-or-lose-it" bill).

**[Summary]{.underline}**: H.R. 6251 would prohibit the Secretary of the
Interior from issuing new leases for the exploration for, or production
of, oil or natural gas, unless the applicant:

-   Certifies that he is "diligently developing" the federal lands in
    his existing leases to produce oil or natural gas---or is currently
    producing oil or natural gas from such lands; or

-   Relinquishes his current leases under which oil and gas is not being
    "diligently developed."

[NOTE]{.underline}: "Diligently developing" and "diligently developed"
are [not]{.underline} affirmatively defined in the legislation. Instead,
Congress would leave it to the Secretary of the Interior to issue a
definition within 180 days of the enactment of this legislation.

Failure to comply with this legislation---or any related
regulation---would trigger civil penalties under the Federal Oil and Gas
Royalty Management Act of 1982 ([30 U.S.C.
1719](http://www.law.cornell.edu/uscode/html/uscode30/usc_sec_30_00001719----000-.html)).

**[Democrat Justifications for This Bill]{.underline}**: This
legislation is the "use-it-or-lose-it" part of the Democrat energy
agenda, in which Democrats have countered Republican calls for opening
the Arctic National Wildlife Refuge (ANWR), additional areas of the
Outer Continental Shelf (OCS), and additional areas of the intermountain
West to oil and gas exploration and development with an insistence that
energy companies are under-producing or not producing on current leases
on federal lands. Some Democrats have asserted that upwards of 68
million acres of federal lands currently leased for oil and gas
exploration and development are not actively being used. Further, they
assert, 4.8 million barrels of oil per day and 44.7 billion cubic feet
of natural gas per day may be "extrapolated" from the oil companies'
"unused" federally-leased lands. These Democrats have asserted that the
federal government should not issue any new leases in ANWR, the OCS, or
the intermountain West until these existing leases are fully utilized.

**[Counter-assertions]{.underline}**:

[Already the Law]{.underline}.  Under current law (30 U.S.C. 226(e) and
43 U.S.C. 1337(b)), federal energy lease holders already must produce
oil or natural gas within five to ten years after [drilling]{.underline}
on the federal land begins, depending on certain circumstances. The
Secretary of the Interior has the power to cancel any such lease if the
energy company fails to comply (30 U.S.C. 188(a) and (b),. As the
American Petroleum Institute (API) points out, all the capital spent by
an energy company to acquire and keep a lease, which can be millions of
dollars for a single lease, is lost if the lease is canceled and/or
returned to the federal government.

[No Incentive to Let Leases Go Idle]{.underline}. Energy companies have
no financial incentive to let leases sit idle. On the contrary, as the
energy advocates at Winnigreen point out, the federal government
requires companies to pay up-front bonus fees and annual rents on the
leased areas, *[regardless of whether they produce oil and
gas]{.underline}*.  If the annual payment is not made, the leases are
forfeited, so it is very much in the companies' interest to work to
produce oil or gas from them.  Because of the uncertainty of exactly
where and how much oil or gas is in an area, companies often secure a
large amount of leases in an area in hopes that some are productive.
Until a well comes on line, those leases may seem to be in the
unproductive stage, but they often are not---and are certainly not
sitting idle out of neglect or some design to pay for, but never use,
federal leases.

[No Activity Today Does Not Mean No Activity Ever]{.underline}.
According to the American Association of Petroleum Geologists (AAPG),
"Finding oil and natural gas traps, places where oil and natural gas
migrate and concentrate, buried under thousands of feet of rock is like
finding the proverbial needle in a haystack.... One cannot assume oil
and natural gas are evenly distributed across a given lease or region.
Rather, exploration is about unraveling the geologic history of the rock
underneath that grid block, trying to understand where oil or natural
gas may have formed and where it migrated.... Successful exploration
begins with an idea---a hypothesis of where oil may be found."

Geologists use this sophisticated modeling to then suggest places to
drill, places to modify their drilling, and places to abandon drilling
(or to never drill in the first place). While some portion of these
assessments is based on geological considerations, some other portion is
also made on financial considerations. That is, just because oil is
found somewhere doesn't mean it is automatically financially sensible to
bring it up.

The AAPG and API note that the process of leasing, evaluating, drilling,
and developing an oil or natural gas field typically takes five to ten
years. While some fields become active sooner, others are hampered by
permitting or regulatory delays, as well as by administrative delays
(like labor problems or data shortages).

Therefore, the AAPG asserts, "Policies that increase exploration costs,
decrease the available time to properly evaluate leases, and restrict
access to federal lands and the Outer Continental Shelf do not provide
the American people with short-term relief from high prices and
undermine the goal of increasing stable long-term supplies."

[Magical Data]{.underline}. The Democrat assertion that 4.8 million
barrels of oil per day and 44.7 billion cubic feet of natural gas per
day may be "extrapolated" from the oil companies' "unused"
federally-leased lands has not been substantiated. As the AAPG noted,
finding exactly where petroleum is, how much of it there is, and how
much is recoverable in a financially sensible way is a matter of
complicated scientific analysis and frequent re-evaluation. Thus, the
4.8 million barrels and 44.7 billion cubic feet figures are highly
suspect.

[Technological Efficiencies Can Make It Unnecessary to Use All
Leases]{.underline}. As API points out, on the OCS, for example,
companies often bid on several contiguous leases in a geographical area
it believes will have underlying oil and natural gas resources. A
strategically placed exploratory well on a single lease may give the
company enough data to determine the petroleum potential of many leases.
Thus, it may appear that the other leases are dormant, but that is not
often the case.

**[RSC Bonus Fact]{.underline}**: According to the American Petroleum
Institute, about 121 companies own rights to OCS leases. Companies
currently lease approximately 43 million OCS acres that account for
about 15% of U.S. natural gas production and about 27% of its oil
production.

Onshore, hundreds of companies own federal leases. Companies currently
lease over 44 million federal onshore acres that account for more than
5% of U.S. domestic oil production and more than 11% of U.S. domestic
natural gas production (as of FY2006).

**[Committee Action]{.underline}**: On June 12, 2008, H.R. 6251 was
introduced and referred to the Natural Resources Committee, which
subsequently amended the bill behind the scenes (not in public forum)
before House floor action today.

**[Possible Conservative Concerns]{.underline}**: In addition to the
concerns raised in the "Counter-assertions" section above, some
conservatives may be concerned that this legislation is aimed less at
well-intentioned policymaking and more at political grandstanding in
reaction to Republican rhetorical victories on the need to increase
American energy exploration and development.

As the Republican staff of the Natural Resources Committee points out,
some of the Democrats saying "use it or lose it" are the same ones who
voted for the "Section 2509 Amendment" in 1992 that gave oil companies
up to ten years, rather than five years, to explore for onshore oil and
to complete required studies and permits. ([Roll Call
#474](http://clerk.house.gov/evs/1992/roll474.xml), October 5, 1992, for
H.R. 776, which became Public Law 102-486) Those Democrats who
understand that oil leasing is not a quick and consistent activity and
who thus voted to give oil companies more time to find and produce oil
on federal leases include Rep. Nancy Pelosi (D-CA), Rep. Steny Hoyer
(D-MD), Rep. Nick Rahall (D-WV), Rep. Norman Dicks (D-WA), Rep. John
Murtha (D-PA), Rep. Allan Mollohan (D-WV), Rep. Jim Moran (D-VA), Rep.
George Miller (D-CA), and Rep. Ed Markey (D-MA).

Some conservatives may also be concerned that, at a time when gas prices
are soaring and the need to increase the supply of American energy has
never been greater, it would be harmful to do anything to restrict the
development of American energy, which this legislation would surely do.
This legislation would send a signal to the energy markets that
petroleum had better come up quick or not at all, a move that could
trigger higher energy prices and discourage investment in energy
exploration.

Lastly, some conservatives may be concerned that this legislation is
being used to assuage the concerns of Democrat-allied environmentalist
groups that have been disturbed by calls for more exploration in
America.

**[Administration Position]{.underline}**: Although a Statement of
Administration Policy (SAP) for H.R. 6251 was not available at press
time, reports indicate that the Administration will oppose this
legislation.

**[Cost to Taxpayers]{.underline}**: A CBO cost estimate was not
available at press time. Reports indicate that the bill would reduce
revenues (from fewer leases). Such a revenue-reduction without any
offsets would normally be a PAYGO violation, but since this bill is
being considered under suspension of the rules, no PAYGO point of order
may be lodged.

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}**: No.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}**: Although a CBO analysis of the
mandates in the bill is unavailable, presumably the provisions of the
legislation would not be considered mandates under the Unfunded Mandates
Reform Act, since companies are technically not *required* to lease
lands from the federal government for energy exploration.

**[Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax
Benefits/Limited Tariff Benefits?]{.underline}**: Though the bill
contains no earmarks, and there's no accompanying committee report, the
earmarks rule (House Rule XXI, Clause 9(a)) does not apply, by
definition, to legislation considered under suspension of the rules.

**[Constitutional Authority]{.underline}**: A committee report citing
constitutional authority is unavailable.

**[Outside Organizations]{.underline}**: The American Petroleum
Institute is strongly opposed to the bill.

**[RSC Staff Contact]{.underline}**: Paul S. Teller,
<paul.teller@mail.house.gov>, (202) 226-9718