Most Recent Action    Current Congress    Background    Hearings 

Outer Continental Shelf Leasing and Royalties (8-5-02)

Activities on the Outer Continental Shelf (OCS) are of interest to the geologic community for a variety of reasons. The availability of resources, possibilities for energy production, environmental impacts from all activities, and proximity to highly populated coastlines all play a role in OCS policy. Of all the activities on the OCS, the most visible, and contentious, are those associated with the leasing and development of OCS lands and the distribution of resulting revenues from these leases. Each year offshore royalties, rents, and bonus bids are collected by the Minerals Management Service (MMS) of the Department of the Interior (DOI) from oil and gas leases, as directed by the Outer Continental Shelf Lands Act of 1953. In recent years, environmental concerns have prompted the establishment of leasing and drilling moratoria that prohibit most OCS production. Currently, the only producing OCS areas are portions of the Gulf of Mexico, California, and Alaska. These moratoria have inevitably led to litigation over leasing and lease development. Even existing leases are not free from scrutiny, as the fate of collected OCS royalties is also heavily debated. Although some money is appropriated to the Land and Water Conservation Fund and other programs that provide grants to states for conservation projects, some states with sensitive coastlines have demanded more.  Several bills were considered in the 106th Congress that would redistribute OCS revenues to conservation efforts.  Most notable is the Conservation and Reinvestment Act (CARA; H.R. 701) that would have provided funding for federal land acquisition, conservation programs, and state matching grants. CARA failed to pass, but a revised CARA provision was added to the fiscal year 2001 Interior appropriations bill.

Most Recent Action
The House Resources Subcommittee on Energy and Mineral Resources held a hearing on July 25th to examine H.R. 5156, legislation that would amend the OCS Lands Act to protect the economic and land-use interests of the federal government. Most notably, the legislation would provide an administrative framework for the management of energy-related activities on the OCS such as permitting, licensing, and creating structures to support existing offshore operations. The legislation, introduced by Rep. Barbara Cubin (R-WY), also encourages alternative energy projects such as wind, wave, and solar power. The bill has the support of the Bush Administration, according to a witness from the Department of the Interior (DOI). A representative from the wind power industry testified on the possible future of OCS wind power in the US. (7/30/02)

The House Resources Subcommittee on Energy and Mineral Resources held a hearing on July 16th on the status of natural gas resources in the US, focusing on the role of natural gas-rich federal lands and the Outer Continental Shelf (OCS). At issue was the growing natural gas supply and demand imbalance, and the resulting negative effects on energy markets, such as energy price fluctuations and energy resource uncertainty. As Chairwoman Barbara Cubin (R-WY) pointed out, the demand for natural gas is expected to grow 60% by 2020, with over 90% of the proposed new power-generation plants featuring natural gas. Supply, however, is not expected to keep pace with demand under present conditions of natural gas availability. Witnesses at the hearing, which included Rebecca Watson, Assistant Secretary for Land and Minerals Management at the Department of the Interior (DOI), consumer advocacy group spokesmen, energy industry representatives, and oil and gas industry representatives, principally called for the opening of the gas-rich federal lands in the Rocky Mountains, Alaska, and the OCS to exploration and production. DOI noted that it has adopted long-term plans to open these lands and short-term plans involving production in the coalbed methane reserves on federal lands in the Rocky Mountains to boost natural gas supply. Rep. Billy Tauzin (R-LA) brought up several issues, including reducing the US dependence on foreign gas imports, reassessing royalty payments for OCS states, and furthering research into possible gas energy sources like methane hydrates.

On July 1st, Secretary of the Interior Gale Norton approved the next 5-year plan for federal OCS oil and gas lease sales for 2002-2007. The plan, submitted in final form by the Minerals Management Service (MMS) in April, takes over from the previous 5-year plan that expired on June 30th. Under the new plan, 20 lease sales will be offered in eight areas currently not under leasing moratoria.  Included in the eight areas are five areas in Alaska and three in the central and western sections of the Gulf of Mexico. According to a MMS press release, there is an estimated 10 to 21 billion barrels of oil and 40 to 60 trillion cubic feet of natural gas in these areas. The first scheduled lease sale under the new plan is the Western Gulf of Mexico Sale 184 on August 21, 2002, in New Orleans. 

On July 17th, the House passed the Interior and Related Agencies FY 2003 appropriations bill, which included a provision that would prevent DOI from developing 36 oil and gas leases off the California coast for one year. The provision, sponsored by Representatives Lois Capps (D-CA), George Miller (D-CA) and Nick Rahall (D-WV), would not allow MMS to allocate money for the further development of 36 contested offshore leases. The sponsors of the provision noted that they hoped the bill would expedite the buying back of the leases by the federal government, an action that the Bush Administration had previously decided against (see below). Additional information on FY 2003 Interior appropriations is available here. (7/24/02)

Oil Lease Buybacks
On May 29th, the Bush Administration announced that it has agreed to buy back portions of Florida's Gulf of Mexico offshore oil leases as well as some mineral rights in the Florida Everglades.  The Department of the Interior will spend $115 million to reacquire seven of nine existing leases in the natural gas-rich Destin Dome Unit, located near Pensacola, from Chevron, Conoco and Murphy Oil companies.  Murphy Oil will suspend development of the two other leases until the moratorium on current leasing expires in 2012.  Development in the leases has been contested by Florida since 1998 under the Coastal Zone Management Act.  The buyback of these leases will end litigation between the oil companies and DOI.  DOI will also spend $120 million to purchase the mineral rights to 390,000 acres in the Everglades from Collier Resources Co.  Collier will retain 200 producing acres that have an estimated 10 to 15 more years of oil production.  This acquisition agreement, which covers parts of Big Cypress National Preserve, Florida Panther National Wildlife Refuge, and Ten Thousand Islands National Wildlife Refuge, is supported by environmental groups concerned with habitat quality for the Florida panther and American crocodile.  Also, Interior Secretary Gale Norton acknowledged that the purchase of this acreage further insures implementation of the $8 billion Comprehensive Everglades Restoration Plan.  Unlike the Destin Dome buyback deal, the Everglades agreement must be ratified by Congress.  Both buyback agreements were sought by Florida Governor Jeb Bush (R) as part of a wider effort to curtail oil and gas production in Florida.    

On the heels of the Florida oil lease buyback agreement, California, eager to begin federal lease buybacks of its own, promptly appealed to President Bush to extend buybacks to other states as well.  The California buyback appeal, which was initiated by California Governor Gray Davis (D), was turned down by Interior Secretary Gale Norton the following week.  On June 10th, both parties took their case to the US Circuit Court of Appeals, with the Bush Administration seeking to overturn a June 2001 California v. Norton ruling in US District Court that blocked the development of 36 offshore oil leases that sit next to 43 producing leases in the federally managed outer continental shelf.   Davis and Norton disagree on California's attitude towards development of the leases.  Davis contends that Californians are strongly opposed to drilling off of  their coast while Norton argues that California welcomes drilling and its associated royalty payments.  On June 13th, the issue was raised again by California Senator Dianne Feinstein (D) during a hearing of the Senate Appropriations Interior Subcommittee.  During the hearing, which was on Fiscal Year (FY) 2003 appropriations for the Interior Department, Feinstein asked Norton to revisit the buyback issue and cited the concern Californians have over drilling on the shelf.   Norton said that the Florida buybacks were approved because gridlocked litigation in Florida over the leases was interfering with other Gulf of Mexico projects.  California's litigation over its leases, on the other hand, had just begun, she argued. On June 19th, Norton sent a letter to California Republican gubernatorial candidate Bill Simon noting that the federal government attempted to strike a buyback deal with California in October 2001. The letter states that California rejected a plan that would have allowed drilling in 23 offshore leases in exchange for the federal buyback of 13 leases.     (7/2/02) 

Current Congress
Although recent attention has focused on new exploration, Congress has been debating for some time how to distribute OCS royalties.  On February 14, 2001, Rep. Don Young (R-AK) reintroduced the Conservation and Reinvestment Act (CARA) with the same bill number as last Congress -- H.R. 701.  This bill, similar to the one passed by the House last year, fully funds the Land and Water Conservation Fund (LWCF) and provides funds for many other conservation programs.  The LWCF would receive $900 million to be split between federal land purchases and matching grants to states for conservation programs.  The remainder of the $3.1 billion would be divided among state wildlife programs, historical areas, urban parks, Indian lands, endangered species, payment in lieu of taxes, and other programs. (2/26/01)

On June 20, 2001, the Bush administration announced that it would abandon a plan to study the possibility of drilling for oil and gas off the coast of Eastern Seaboard states.  A spokeswoman from the Interior Department stated that they canceled the study because "there is no intent to drill in the Atlantic." The announcement was contained in a release in Commerce Business Daily, an official online listing of government contracting and procurement opportunities where the sale was originally posted.  In related news, the Interior Department's OCS Policy Committee passed a resolution urging the Secretary of the Interior to consider lifting existing moratoria for five offshore areas off California, Florida, North Carolina, and New England. The external advisory committee, which is chaired by Alabama State Geologist Don Oltz, passed the resolution at a meeting on May 24th. As reported in Greenwire, the committee's rationale for their recommendation was the need to meet the nation's growing demand for natural gas. The resolution states that MMS, "in consultation with industry and affected states, should identify the five top geologic plays in the moratoria areas, and if possible, the most prospective areas for natural gas in the plays that industry would likely explore if allowed. These five areas would provide the basis for a pilot to see if limited activity...is possible in the moratoria areas."   (6/20/01)

Another aspect of the OCS debate has been general ocean issues, including coastal conservation and marine health.  In the 106th Congress, President Clinton signed the Oceans Act of 2000 into law that would establish a governing body appointed by the president and congressional delegations.  On June 15, 2001, President Bush announced his intention to fulfill one of the provisions of the Oceans Act of 2000 by appointing 16 members to the Commission on Ocean Policy.  The 16 appointees were chosen by the President from a pool of 24 nominees selected by various senior members of Congress.  The released list of appointees contains people from a wide range of professions--including an ocean explorer, a fish processor, and the Environmental Protection Agency's first administrator--but the list has been criticized by environmental groups who say that the list lacks a representative from a national environmental group.  A full list of nominees can be found in the White House press release.  A Geotimes article from November 2001 provides more information on the first meeting of the Commission on Ocean Policy that happened in September.  More information on general ocean issues is available on AGI's Oceans Legislation.   (7/2/01)

The House Resources Committee held a hearing on June 20th to hear testimony on two bills related to directing money from offshore oil and gas production towards conservation and recreation needs, and the accompanying private property rights issue.  The main focus of the hearing was H.R. 701, the Conservation and Reinvestment Act (CARA).  Although CARA includes provisions to protect private property rights, but Rep. Mac Thornberry (R-TX) introduced H.R. 1592, the Constitutional Land Acquisition Act, in April of 2001 to provide additional protections.  There were three panels of witnesses at the hearing, including representatives from individual cities and counties, and resource and park management divisions.  A hearing summary is available below.  (7/2/01)

With the announcement published in the October 12th Federal Register, the final Environmental Impact Statement (EIS) released by MMS in the beginning of July 2001 will remain on the books.  Initial concerns in the EIS were air and water quality, risk of oil spills, sea-bottom habitats for marine life, and military operations.  In its preliminary EIS, the MMS decided upon three options for use of  the Lease Sale 181 area.  The three options were: sale of all blocks in the Lease Sale 181 area, deferment of 126 of the blocks due to military conflicts, or "No Action" or the equivalent of canceling the sale.  In the subsequent decision by the Department of the Interior on July 2, 2001, the sale of all the blocks in the 181 area was confirmed.  The final EIS was prepared based on more than 500 comments received on the draft EIS in both written and electronic form as well as comments received at public hearings held in Pensacola and Tallahassee, Florida; Mobile, Alabama; and New Orleans, Louisiana.  Although a copy of the final EIS is not available online, MMS has archived news releases and other information on Lease Sale 181 on its website. (7/5/01)

On October 12th, the Minerals Management Service (MMS) published a short notice on the environmental assessment for the revised Lease Sale 181 in the Gulf of Mexico.  According to the statement in the Federal Register, MMS "determined that a supplemental [Environmental Impact Statement] is not required and prepared a Finding of No New Significant Impact."  The agency had opened a public comment period in July to solicit feedback on the decision to reduce the size of the lease sale from the original 6 million acres to 1.5 million acres.  MMS and the Department of the Interior (DOI) announced the size reduction earlier that month in response to strong opposition.  Although Secretary of the Interior Gale Norton defended the decision to scale back the size of the area for sale by calling it the proper response to local interests, there is still concern among environmental groups and Florida residents.  These groups are concerned that pollution from spills and everyday operation of the petroleum production will affect the beaches upon which the state's economy relies so heavily for income.  Others also fear that the sale opens the door for expanded drilling in the Eastern Gulf in the future.  The press release on this subject is available at the Department of the Interior page.  (10/16/01)

Lease Sale 181 became a hot topic in the appropriations process.  Both the Interior and Related Agencies (H.R. 2217) and the Energy & Water (H.R. 2311; S. 1171) appropriation bills had amendments added during floor debate to delay activities related to Lease Sale 181 and the Gulfstream pipeline project until after April 1, 2002.  Lanuage from the Interior Appropriations bill was removed during Conference Committee.  According to the Conference Report (H. Rept. 107-234),  "section 334 that would have prohibited the use of funds to execute a final lease agreement for oil and gas development in the area of the Gulf of Mexico known as Lease Sale 181" was not incorporated into the final bill.    (10/16/01)

Background
Outer Continental Shelf (OCS) revenues including royalties, rents, and bonus bids are a significant part of U.S. income.  The Minerals Management Service (MMS), created in 1982, manages the lands and the leases in the OCS.  According to the MMS, federal OCS lands supply a quarter of U.S. production of natural gas and one-eighth of oil.  Revenues from offshore leases are annually appropriated from the federal treasury by Congress.  Portions are distributed to states with offshore leases and to conservation programs.  Several bills were introduced in the 106th Congress that aimed to change the way revenues are appropriated.  The bills focused on appropriations for conservation measures, environmental quality, and the manner of distribution among states.

CARA (H.R. 701) was the most far-reaching bill and also the most widely supported measure relating to the OCS in the 106th Congress.  Young originally introduced CARA as a set of independent authorization bills to provide funding for resource protection projects through revenues taken from OCS oil and gas activities.  CARA passed out of the House and the Senate Energy and Natural Resources Committee but was not considered by the full Senate in the 106th Congress.  CARA is of key interest to the geological community because it increases funding for land acquisition, research, mapping, and surveying projects within the U.S. Geological Survey, and also increases the grant money available for states for use in conservation efforts.  Although H.R. 701 did not pass in its entirety last Congress, proponents of the bill as well as President Clinton pushed to have increased conservation funding included in the fiscal year 2001 Department of the Interior Appropriations bill (H.R. 4578) and the Department of Commerce Appropriations bill (H.R. 4942).  Sections of both bills contain ideas from the CARA bill.  The funding in the appropriations bills is not continued from year to year as proponents say is needed to plan conservation programs.

OCS leases in conflict with other regulations restricting industrial activity have received attention in court during the past few years.  There is a moratorium on drilling on most OCS lands.  The moratorium along other environmental protection measures that restrict exploration have rendered some existing leases unusable.  Several companies brought lawsuits against the federal government for breach of contract.  A Supreme Court Ruling on June 26, 2000, favored Mobil Oil Exploration & and Producing Southeast, Inc., requiring the Department of the Interior to refund rents paid for leases in the Gulf of Mexico that were later restricted by the Oil Pollution Act of 1990.

More background information can be viewed on the AGI Update on Outer Continental Shelf Royalties for the 106th Congress, and in the Congressional Research Service reports Outer Continental Shelf: Oil and Gas Leasing and Revenue and The Lands Legacy Initiative and CARA: Alternative Legislative Approaches to Conserving Natural Resources in the 106th Congress.


House Resources Subcommittee on Energy and Mineral Resources
Hearing on H.R. 5156 to amend the Outer Continental Shelf Lands Act to protect the economic and land use interests of the Federal Government in the management of OCS lands for energy-related purposes
July 25, 2002

The Bottom Line
The House Resources Subcommittee on Energy and Mineral Resources held a hearing on July 25th to examine H.R. 5156 that would amend the OCS Lands Act to protect the economic and land-use interests of the federal government. Most notably, the legislation would provide an administrative framework for the management of energy-related activities on the OCS such as permitting, licensing, and creating structures to support existing offshore operations. The legislation, introduced by Rep. Barbara Cubin (R-WY), also encourages alternative energy projects such as wind, wave, and solar power. The bill has the support of the Bush Administration, according to Minerals Management Service (MMS) Director Johnnie Burton, testifying on behalf of the administration. A representative from the wind power industry testified on the possible future of OCS wind power in the US.

Members Present

Barbara Cubin (R-WY), Chairwoman Jay Inslee (D-WA)

Hearing summary
In her opening statements, Chairwoman Barbara Cubin (R-WY) briefly outlined H.R. 5156, which she introduced earlier this session. She noted that the legislation will promote alternative energy projects on the OCS such as wind, wave, and solar power projects. She also stated that the bill would help streamline the licensing and permitting process for new projects on the OCS as well as allow ancillary projects like medical and supply facilities to be created for the oil industry. Currently, permitting confusion exists due to the gaggle of federal agencies with jurisdiction over the OCS. There exists no central authority to coordinate permitting processes for new projects. Cubin noted that Environmental Defense, which was not present at the meeting, opposes H.R. 5156.

The first witness was Johnnie Burton, Director of the Minerals Management Service (MMS). She voiced the Bush Administration's support of H.R. 5156, noting that it fulfils the administration's National Energy Policy by encouraging innovative OCS energy projects. She explained that the legislation would more clearly define the permitting process and end the permitting frustration of the private sector. Also, she stated that the bill bolsters existing oil and gas production on the OCS by allowing supporting facilities such as offshore medical clinics to be created. Burton explained that DOI has been vested with this authority because of its long land management history.

In the ensuing question and answer period, Cubin questioned Burton on the environmental pedigree of this legislation. Burton assured Cubin that the bill keeps environmental concerns in the forefront, and that all environmental impacts will be thoroughly reviewed. Cubin then asked Burton how the legislation handles coastal Liquefied Natural Gas (LNG) ports and noted the possibility of opposition to those ports from the states. Burton responded by saying that LNG ports are not addressed specifically in the legislation, and any concern is unfounded.

The second witness was Jaime Steve, who is the Legislative Director for the American Wind Energy Association. He began by noting that there are no current offshore wind projects in the US, as opposed to Europe. Europe, with its land availability problems, has approximately 10 offshore projects mainly in Scandinavian countries. The US has no land availability problems, he stated, but still has lagged behind Europe in terrestrial and offshore wind power. California pioneered wind power in the US, he said, and progress has been slow but steady elsewhere. Steve explained that offshore wind power has the advantages of longer, sustained winds and closer proximity to large coastal cities. He did offer a warning, however, that current projects that have already gone through a complex permitting process could be interrupted by repermitting policies under H.R. 5156.

In the question and answer period, Cubin asked if the wind industry has a promising future in the US. Steve answered yes, saying that the US in getting more involved and Europe is already counting on wind power to meet some of its future energy needs. Cubin followed by asking how will the US, like Europe, overcome the aesthetic problems of intrusive wind power facilities. Steve answered that European coastal citizens were won over by being given a financial stake in the project. He also stated that windmills usually have minimal visual impact because of their long distances from shore. He added that energy prices from wind would be more stable, adding to the attractiveness. Both Cubin and Steve agreed that stability and certainty in permitting and governing laws are a prerequisite for wind power industry growth. He stated that, for example, wind power in Texas is flourishing because of tax credits and pro-wind power laws instituted when George W. Bush was the governor. The Dakotas on the other hand, where wind power could be tremendous due to high winds, are lagging behind because of little or no wind power incentives or energy transporting infrastructure.

Rep. Jay Inslee (D-WA) asked Steve how wind power technology is progressing. Steve answered that technology has come a long way, but a few more innovations are necessary to make wind power attractive to most of the states. He noted that the real obstacle is power transmission. The wind power industry, he stressed, must have the infrastructure to deliver wind power or it will never compete with more traditional forms of energy.

-DBV


Hearing on H.R. 701 and H.R. 1592: CARA and the Constitutional Land Acquisition Act
House Resources Committee
June 20, 2001

The Bottom Line
On June 20, 2001, the House Resources Committee met to discuss two bills on the agenda related to directing money from offshore oil and gas production towards conservation and recreation needs, and the private property rights that accompany the issue.  The main focus of the hearing was H.R. 701, the Conservation and Reinvestment Act (CARA).  Passed in the House of Representatives and the Senate Committee on Energy and Natural Resource in the 106th Congress, CARA takes revenue from federal offshore oil and gas production to fund production impact assistance and coastal conservation.  It also funds conservation and recreation programs in other parts of the nation.  Although CARA includes provisions to protect private property rights, but Rep. Mac Thornberry (R-TX) introduced H.R. 1592, the Constitutional Land Acquisition Act, in April of 2001 to provide additional protections.  There were three panels of witnesses at the hearing, including representatives from individual cities and counties, and resource and park management divisions.  All witnesses testified in support of CARA, except for the representative from the American Association of Small Property Owners.

Hearing Summary
Committee Chairman James Hansen (R-UT) opened the hearing by recounting CARA's history in Congress, emphasizing the bipartisan support the bill has garnered--the bill currently has over 220 co-sponsors.  CARA has a wide range of provisions that include funding for expanded wildlife conservation, funding the Land and Water Conservation Fund, funding recreational parks in cities and counties, and providing protections for private property owners from federal land acquisition.

In oral comment and written testimony, Reps. Billy Tauzin (R-LA) and Barbara Cubin (R-WY) recognized the fact that coastal states, responsible for a large portion of domestic oil and natural gas production, may not be receiving a fair amount of royalty revenues.  A major concern for coastal states is the protection of the coastlines and coastal wetlands that enable them to successfully operate drilling programs.  Louisiana alone has 12,000 oil wells and 20,000 miles of pipeline that transport 25% of America's gas and oil.

A speaker from the first panel, Mr. Jack C. Caldwell, Secretary of the Louisiana Department of Natural Resources, echoed these concerns, stating that half of the population of the United States lives within 100 miles of the coast, and that oil and gas producing states bear a disproportionate burden without any extra compensation.  Caldwell pointed out that funding from CARA could help implement a plan to save the coastal wetlands that are both valuable as ecosystems and as protection for offshore drilling operations.

Another option for uses of CARA funds is for reinvestment of money derived from non-renewable resources into programs that develop and use renewable and sustainable resources, also mentioned by Mr. Caldwell in his testimony.  Providing just over $3 billion in annual conservation investments through the year 2015, the biggest issue with CARA seems not to be gathering support, but deciding how to equitably distribute the money to all the areas and conservation and recreation projects that could use it.

The remainder of the hearing focused on public lands issues and private property rights, which are another set of issues addressed in both CARA and the Constitutional Land Acquisition Act.  The full text of written testimony of all the witnesses is available on the committee's website.

-CMO

Sources:  MMS website, Congressional Research Service reports, Greenwire, E&E Daily, Library of Congress's Thomas, CNN website, House Resources Committee website, hearing testimony, Department of the Interior website, and AAPG Explorer.

Please send any comments or requests for information to the AGI Government Affairs Program.

Contributed by Spring 2001 AGI/AAPG Geoscience Policy Intern Mary H. Patterson, Summer 2001 AGI/AAPG Geoscience Policy Interns Caetie Ofiesh and Michelle Williams, Summer 2002 AGI/AIPG Geoscience Intern David Viator, and Margaret A. Baker, Government Affairs Program.

Posted February 26, 2001: Last updated August 5, 2002


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