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Dodgy Budgeting in the Arctic

March 3, 2005

What if Congress authorized oil leases in the Arctic National Wildlife Refuge and no one came?

A Bush administration adviser told the New York Times this week that the federal government couldn't give Arctic refuge leases away. None of the major oil companies cares much about opening the refuge to oil drilling, said the official, who understandably didn't want his name used.

The big oil companies' tepid attitude raises interesting questions about the due diligence, or lack thereof, behind the estimate in the president's proposed 2006 budget that drilling the refuge would bring in $2.4 billion in revenues.

The congressional committees preparing Congress' 2006 budget resolution surely won't replicate such carelessness by including shaky revenue estimates, will they?

Including the estimate in the budget is more than just a bookkeeping quibble. If Congress adopts a budget resolution that includes Arctic drilling revenues, companion "reconciliation" legislation to authorize drilling could be passed by a simple Senate majority. Under Senate rules, filibusters of reconciliation bills are not allowed.

With the Arctic refuge as close to being opened as it's ever been, what's up with the major oil companies? BP, ConocoPhillips, and ChevronTexaco have dropped out of Arctic Power, a lobbying organization subsidized by the state of Alaska, whose politicians cannot bear the thought that the petroleum gravy train will someday stop chugging.

As the congressional showdown nears, the majors are largely keeping their heads down. A ConocoPhillips spokeswoman said her company has only a "conceptual interest" in the refuge -- a verbal cold shower for the pro-drilling crowd.

The majors may know something the rest of us don't. Only one drilling test in the refuge has been conducted, back in the 1980s. While the results are secret, the majors' "conceptual" stance on the refuge may be a revealing signal that they don't think the refuge oil prospects are worth much.

Why not? It goes back to the economic concept of opportunity costs. If oil reservoirs beneath the refuge are in small, scattered formations, oil companies may decide their exploration capital would be better deployed elsewhere.

And the majors certainly have other fish to fry. The debate over the refuge may be an opening gambit in a drive to open more promising prospects – oilfields off the coasts of California and Florida that are now under a drilling moratorium. The politics of planting more rigs off those two states, however, are dicey. Few political positions unite factions in the Golden and Sunshine states better than opposition to offshore oil drilling.

Congress is kicking the tires on a bill that would reshuffle state and federal powers over offshore oil and gas drilling. States would receive more royalty income in exchange for lifting of the drilling moratoria. The bill hasn't been introduced and likely would go through several iterations if it were introduced. Still, coastal legislators on both sides of the aisle are wary of its provisions.

Given its druthers, the administration wouldn't mind opening the coasts to more drilling. But the administration may decide that the politically prudent path lies in not angering Republican congressional delegations from coastal states – or a pair of influential Republican governors named Schwarzenegger and Bush.