Oil-Drilling Safety Bill Stalls Amid Fight over Oil Royalties

- Oil-Drilling Safety Bill Stalls Amid Fight over Oil Royalties

Friday, July 22, 2011
Dow Jones Newswires
WASHINGTON
by Tennille Tracy

A group of mostly Republican lawmakers blocked a key vote on legislation to strengthen oil-drilling safety Thursday after efforts to use the bill to steer billions of dollars of oil royalties to coastal states like Alaska and Louisiana appeared likely to fail.

The move postpones an important committee-level vote on offshore safety legislation that has been in the works for more than a year, following the Deepwater Horizon oil spill in 2010.

The delay gives more time to behind-the-scenes deal makers to work out a compromise on so-called revenue-sharing proposals, which would direct nearly 40% of royalty revenue away from the federal government and to the coastal states.

But the delay also raises questions about the fate of the offshore drilling safety legislation and the ability of lawmakers to move that bill to the floor of the Senate.

Events unfolded Thursday at the Senate Energy and Natural Resources Committee, which was scheduled to hold a much-anticipated vote on legislation that steps up enforcement of drilling safety standards and strengthens drilling safety provisions.

Heading into the vote, two coastal senators--Sens. Mary Landrieu (D., La.) and Lisa Murkowski (R., Alaska)--were actively recruiting support for an amendment that would steer 37.5% of oil royalties, which are currently collected by the federal government, to coastal states.

With the federal government reporting more than $5 billion in offshore royalty revenue in 2010, such a move would be a big win for coastal state governments. Landrieu has supported such a proposal for years, arguing that coastal states are entitled to some of the royalty revenue that comes from all production off their shores.

An existing law allows Gulf Coast states to collect 37.5% of royalty revenue on some leases, starting in 2017.

Because Landrieu and Murkowski need the support of at least some Democrats to attach the revenue-sharing amendment to the drilling safety bill, they decided in 11th-hour deal-making to create a fund to promote clean energy. In doing so, they hoped to attract the support of some Democrats, a Republican aide said.

But when a measure to create such a fund failed in the committee Thursday, the chance of success for the revenue-sharing plan decreased substantially. Several Republicans then walked out of the committee room, leaving the committee without enough members to hold a vote and effectively blocking any further action.

The fate of the offshore-drilling safety legislation is now uncertain, said Sen. Jeff Bingaman, a Democrat from New Mexico who chairs the energy committee. When asked by a reporter whether the bill could be revived, Bingaman shook his head and said, "I don't know."

Copyright (c) 2011 Dow Jones & Company, Inc.

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India, RIL in Proxy Fight Over KG-D6 Output Decline - Bernstein

India, RIL in Proxy Fight Over KG-D6 Output Decline - Bernstein

Thursday, May 05, 2011
Asia Pulse Pte Ltd

India's Reliance Industries wants a hike in the price of natural gas to resume drilling in the KG-D6 fields, which have seen a sharp drop in output due to drilling of less wells than committed, investment research group Sanford C Bernstein & Co said.

"We believe that RIL doesn't believe it is worth its while to invest additional capital in drilling wells when the price at the beach remains at US$4.20" per million British thermal units, Neil Beveridge, a Hong Kong-based analyst for Bernstein, said in a report on Thursday.

Gas output from the Dhirubhai-1 and 3 fields in the KG-D6 block had steadily risen to 53 million standard cubic meters per day in March last year, but have dropped to below 42 mmscmd now instead of rising to the projected level of 61 mmscmd.

Another 8 mmscmd is produced from the MA field in the same block, taking the total output from KG-D6 to about 50 mmscmd.

The fall in output due to drilling of less wells had earned RIL the ire of the government and the regulator DGH.

While the DGH is pressing RIL to drill more wells outside the main channel that is currently producing, the government is pressuring RIL by directing it to supply gas to priority sectors like fertilizer and power and cut off sales to refineries and petrochemical plants, including its own.

"We believe that this is a proxy fight between the government and RIL," Bernstein Research said.

"Lower production output is primarily a function of the hiatus in development drilling," it said. "While it seems likely that the reservoir is more complex than originally anticipated, performance on a per well basis has not been too dissimilar to the original field development plan.

"Instead, the lower number of development wells drilled (18 versus 22 planned) is primarily the reason for the under-performance," it said.

Bernstein said completion of Phase - I drilling plus initiation of Phase-II drilling, when the total number of wells could reach up to 50, would restore output growth.

"We believe that the natural rate of the decline in production for the KG-D6 wells is around 20 percent annually, or around 5 percent per quarter, not substantially different from similar fields around the world," it said.

"In case RIL doesn't take any more action on the drilling of wells and connecting those to the reservoir and continues operating with 18 wells, we expect the production to reach a level of around 37-38 mmscmd by FY'2013," Bernstein said.

The government has asked the company to drill 11 wells by the fiscal-end to take the total number to 31 as had been planned when RIL won approval for investing $8.8 billion, S.K. Srivastava, the director general of the country's oil regulator, had said earlier this week.

RIL will submit a drilling plan in two weeks, he had said on May 2.

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