Congresswoman Capps announced that she will push for the Senate to leave out these controversial provisions.

“The energy bill is full of giveaways for the oil and gas industry, and this is an especially bad one,” Capps said.  “The bill insures that companies that buy oil and gas leases will get taxpayer bailouts if their investments don’t work out.”

The provisions have particular resonance on the Central Coast of California, where 36 undeveloped offshore leases are the subject of negotiations expected to lead to their termination.  The Central Coast leases date from 1968 to 1984, and oil companies didn’t develop them at the time because of a combination of low oil prices and stiff local opposition to new offshore drilling. 

Under the terms of the leases, which have been bought and sold several times over the last 30 years, the companies should have had to return them to the federal government after five or 10 years if they weren’t going to develop them.  Now most of the leases are probably not even eligible for development due to tougher environmental standards along California’s coast.

“The 36 leases off the California coast provide the perfect example of what’s wrong with this provision,” Capps said.  “Many, if not most, of these leases are probably ineligible for development and therefore are worthless.  But under the energy bill, the taxpayer will be forced to fork over billions of dollars to the oil companies that don’t want to develop the leases anyway.” 

Two years ago, the Bush Administration agreed to enter into negotiations with the oil companies to terminate the leases after the House passed a Capps amendment against their development and California won court cases giving it the right to review any development plans. 

Now, the leases are pending before the Coastal Commission, a panel that will determine which, if any, leases can be developed and therefore have any value.  Capps has said that those without value should be terminated; those leases with value should be bought out and placed in permanent moratorium against development.

The energy bill’s provision also has the consequences of allowing lessees to be compensated even if a permitting agency, such as the Coastal Commission, determines the leases can’t be developed.  Taxpayer compensation for the leases would be based purely on costs paid by the lessee.  And the same lease could be resold even if taxpayers were forced to buy it back.

The oil lease provisions were adopted by the House Committee on Resources during its consideration of HR6.  Although highly controversial, the provisions have attracted little, if any, public scrutiny.