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Outer Continental Shelf Policy (10-10-06)

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.

The House and Senate were unable to settle their differences on offshore drilling legislation before the October recess. The Gulf of Mexico Energy Security Act of 2006 (S.3711), introduced by Senator Pete V. Domenici on July 10, 2006, would open 8.3 million acres in the eastern Gulf of Mexico to new oil and gas drilling. The bill was cosponsored by fourteen members and passed by a 75 to 21 vote on August 2. It would permit oil and gas leasing in the 181 and 181 South areas within one year but places a moratorium on leasing in other specified areas until at least June 30, 2022. According to S. 3711, any party with a prior lease in areas subject to the moratorium may "exchange the lease for a bonus or royalty credit that may only be used in the Gulf of Mexico" (Sec 4(c)(1)).

The Senate bill now needs to be reconciled with the much broader House bill, the Deep Ocean Energy Resources Act (DOER, H.R. 4761). The House bill would not only affect the Gulf of Mexico, but would lift the 25-year moratorium on drilling for oil and natural gas off most of the U.S. coastline. States would have the option to maintain the offshore drilling ban within 100 miles of their coastlines and a percent of federal revenue generated from offshore drilling royalties would go directly to states. The extent of the drilling and the sharing of the royalty revenues remain the most contentious issues to resolve between the two bills. (10/10/06)

On June 29, 2006 the House passed the Deep Ocean Energy Resources Act (DOER, H.R. 4761) by a vote of 232 - 187. This bill would lift the 25 year old moratorium on drilling for oil and natural gas off most of the U.S. coastline. States have the option to maintain the offshore drilling ban within 100 miles of their coastlines.

Part of the federal revenue generated from offshore drilling royalties would fund the Energy and Mineral Schools Reinvestment Fund (EMSRA). Funds will be distributed to petroleum, mining, applied geology and geophysics schools to support education and research and to encourage the growth of professionals in the energy workforce. Additional funds would be available for K-12 science education. H.R. 4761 also establishes the National Geo Fund to fund geologic mapping, geophysical and other seismic studies, earthquake monitoring programs, and preservation and use of geologic and geophysical data. (7/6/06)

On June 21, 2006 the House Resources Committee passed the Deep Ocean Energy Resources Act (DOER, H.R. 4761). The bill passed 29-9 after a heated debate. Sponsored by Rep. Robert Jindal (R-LA), H.R. 4761 lifts a 25 year ban on drilling for oil and natural gas in the outer continental shelf. States have the option to prohibit drilling in areas within 100 miles of their coast. Resources Chairman Richard Pombo (R-CA) opened the markup session with strong words describing his support for the measure. "Despite the country's decision to use natural gas, our resource policies prevent us from producing it here at home," said Pombo. He also described "well-intentioned conservation laws" as having harmful consequences on the economy.

Supporters of the bill stress that there is little threat to the environment. Pombo insisted that the lawmakers should no longer have to choose between environmental protection and economic growth. "We've been given a false choice between the economy and the environment for the past 30 years," Pombo said. Furthermore, states concerned about the effects of tourism on their coastline have the right to ban drilling within 100 miles of the coast, he said.

Several other members expressed their support for H.R. 4761. Rep. John Peterson (R-PA) suggested that the resources in federal waters belong to the people of the U.S. as a whole, not just nearby states. He also stated his alarm that the cost of natural gas is very high in the U.S. "We pay more for our natural gas than anyone else in the world," added Peterson. "That fact alone makes natural gas more of an immediate problem for our country than oil…When natural gas hit $15 a thousand cubic feet last winter, we were an island unto ourselves." Rep. James Gibbons (R-NV) speculated that high energy prices would only go higher. "This is a new plateau that could still spike," said Gibbons, and added "We will not have the country we inherited from our fathers if we don't deal with energy."

A major part of the debate focused on how government royalties would be distributed. H.R. 4761 stipulates that 75% of royalties generated from drilling within 12 miles of the coast would be given to states, states with offshore drilling more than 12 miles would be given 50% of the royalties generated. Rep. Edward Markey (D-MA) expressed concern that the funds should not be given away. "Federal funds should be sent to fund education and healthcare," he said. "This bill raids the federal treasury." The Bush Administration has shared similar concerns. Executive branch estimates have shown the cost of revenue sharing at $69 billion over 15 years. However, Rep. Neil Abercrombie disagreed. "How can this bill raid the treasury when there currently are no royalties at all?" he asked. "This is new revenue…it currently all goes overseas."

Part of the federal revenue generated from offshore drilling royalties will fund the Energy and Mineral Schools Reinvestment Fund (EMSRA). Funds will be distributed to petroleum, mining, applied geology and geophysics schools to encourage the growth of professionals in the energy workforce. H.R. 4761 also establishes the National Geo Fund to fund geologic mapping, geophysical and other seismic studies, earthquake monitoring programs, and preservation and use of geologic and geophysical data. The Geo Fund was added as an amendment sponsored by Rep. Thelma Drake (R-VA).

An amendment offered by Markey failed on a vote of 7-23. The amendment would have struck all the language from the bill except for language establishing a fee to recoup royalties from 1998-1999 oil leases.

The current language within H.R. 4761 represents a compromise on various bills introduced by Jindal, Peterson and Pombo. Peterson's bill had focused on natural gas offshore drilling only. Pombo offered an amendment to eliminate the offshore drilling ban beyond 100 miles of the shoreline, which had been part of previous legislation he had introduced. Pombo's amendment passed by a vote of 29-9. A full House vote on the bill is expected during the week of June 26th.

For more information, click here. (6/30/06)

On May 18th, the House rejected an attempt to allow more offshore natural gas drilling through an amendment to the 2007 Interior, Environment, and Related Agencies Appropriations Act (H.R. 5386). Florida and California representatives cited a threat to tourism when opposing the measure, saying that wells could be placed within three miles of the coast. "It's a grievous assault on Florida and other [coastal] states," said Representative Adam Putnam (R-FL). This argument overshadowed the call for more energy supplies to reduce high energy prices. Putnam sponsored an amendment (H.AMDT.856) on the House floor to reinstate the ban, which passed 217-203. (5/25/06)

The House Appropriations Committee voted on May 10, 2006 to remove a long-standing ban on offshore natural gas drilling. The committee voted 37-24 to include the amendment, which was introduced by Representative John Peterson (R-PA), in the 2007 Interior, Environment, and Related Agencies Appropriations Act. Originally enacted in 1982, the ban on coastal drilling covers the east and west coasts of the U.S. as well as the eastern part of the Gulf of Mexico. It has been renewed by Congress every year during the appropriations process.

Peterson's amendment would lift restrictions on offshore natural gas drilling but maintain limitations on offshore oil drilling. The language in the legislation is similar to language Peterson introduced last year to a bill in the House Resources Committee. That bill was approved by the committee, but the offshore drilling provisions were removed in a 157-262 vote when the bill came before the full House.

The amendment will likely face a tough battle on the House floor this year as well. Critics from both parties, particularly those in coastal states, have voiced strong opposition. According to E&E Daily, Representatives Jim Davis (D-FL) and Mark Foley (R-FL) plan to introduce a new amendment sometime next week that will renew the ban. Representative Lois Capps (D-CA) called the amendment "failed Republican energy policy that won't solve our nation's energy needs and has repeatedly and resoundingly been rejected by the House and the American public" (E&E) and said she too would be fighting to reinstate the ban. (5/11/06)

On February 7, 2005 seven oil and gas trade groups sent a letter to Interior Secretary Gale Norton asking Interior "to begin the request for comments solicitation by seeking information for all planning areas, as required by the Outer Continental Shelf Lands Act and National Environmental Policy Act." Current restrictions in place through mid-2012 prevent new leasing in the federal OCS off the East Coast, West Coast, most of the eastern Gulf of Mexico and part of Alaska.

But the letter notes "there is great concern about energy supply in this country" and urges the Minerals Management Service to "keep all options on the table" and seek broad input. The National Petroleum Council has estimated that nearly 80 trillion cubic feet of recoverable natural gas in the lower 48 states is off limits due to existing presidential and congressional leasing bans.

Groups that sent the letter are the National Ocean Industries Association, the American Petroleum Institute, the Natural Gas Supply Association, the U.S. Oil and Gas Association, the Domestic Petroleum Council, the International Association of Drilling Contractors, and the Independent Petroleum Association of America.

According to Greenwire, the groups say the Outer Continental Shelf Lands Act lays out "specific factors" that must be considered when the administration decides the time and place of lease sales and that the administration cannot comply "if the agency does not solicit and gather information about all the outer continental shelf regions during the initial request for comments." Greenwire reported that a Minerals Management Service spokesman was not certain when the service would issue a call for comments on the plan's development. He said the Bush administration supports the existing restrictions in place through 2012. (2/14/05)

The Outer Continental Shelf (OCS) is defined by current law as the submerged lands that stretch between 3 and approximately 690 geographical miles seaward of the U.S. coastline. Within the first 3 miles of a state's shore, all subsoil and seabed resources are managed by the state. The Gulf of Mexico coasts of Texas and Florida are the exception, with state waters extending to approximately 9 geographical miles. Beyond 690 miles, or 200 nautical miles (nm), the seabed and subsoil are considered to be in international waters. The 200 nm expanse beginning at the shoreline is referred to as a nation's Exclusive Economic Zone (EEZ).

The OCS and EEZ are extended if the coastal margin is geologically defined as extending beyond the 200 nm limit. Such extensions can be found off of Alaska, the Atlantic coast, and in the Gulf of Mexico. Where the geological continental margin is narrow, as in the Pacific, federal jurisdiction is limited to within the 200 nm zone.

State jurisdiction over coastal resources was passed and signed into law under the Eisenhower administration, with the Submerged Lands Act of 1953. In the same year of the Submerged Lands Act, Congress and President Eisenhower passed into law the Outer Continental Shelf Lands Act (OSCLA), which grants to the Secretary of the Interior authority over all mineral resources on the OCS. Prior to 1953, the federal government had claimed jurisdiction over all offshore resources, beginning in 1945.

OSCLA provides regulations and procedures for the leasing of federal OCS lands, ensures environmental protection of affected areas, and contains provisions that ensure the government a fair market value for any production on federal lands. A fixed royalty of one-eighth or one-sixth of the market value is collected off of any gas or oil production by the Interior Department's Mineral Management Service (MMS). Since the early 90s, OCS leasing has only taken place in the Central and Western Gulf Coast of Mexico, with 95% of OCS royalty revenues coming from offshore of Texas and Louisiana. In addition to royalties, OCS revenues include rents and bonus bids.

Any new developments concerning OCS were tied up in the comprehensive energy bill, H.R. 6, which hit a major roadblock in the Senate in the form of the Democratic filibuster. Provisions in the energy bill would support research and exploration in the areas of ultra-deepwater natural gas and petroleum resources. The Outer Continental Shelf Shallow Water Deep Gas Royalty Relief Act contained in H.R. 6 suspends royalties on natural gas from deep wells on already leased tracts of the shallow waters in the Gulf of Mexico. It would also amend the Outer Continental Shelf Lands Act to give the Interior Secretary would have the authority to suspend royalties in Alaskan offshore areas, in addition to the aforementioned shallow Gulf waters. H.R. 6 also permits easements for previously unauthorized activities on the OCS if they "support exploration, development, production, transportation, or storage of oil, natural gas, or other minerals."

The Energy Bill would have replaced the Alaska National Interest Lands Conservation Act of 1980 with the Arctic Coastal Plain Domestic Energy Security Act of 2003 known as H.R. 39. That bill, which proved to be HR 6's Achilles heel, proposed "a competitive oil and gas leasing program that will result in an environmentally sound program for the exploration, development, and production of the oil and gas resources of the Coastal Plain." The bill would have repealed the prohibition on production in the Alaskan National Wildlife Refuge (ANWR), maintaining that ANWR's existence as a wildlife refuge is "compatible" with environmentally friendly drilling.

Sources: Congressional Research Service, CQ Today, Department of the Interior, Environment& Energy News Daily, Greenwire, Hearing Testimony, Mineral Management Service and the Washington Post.

Contributed by David R. Millar 2004 AGI/AAPG Fall Intern; Emily Lehr Wallace and Linda Rowan, AGI Government Affairs Program; Jenny Fisher, 2006 AGI/AAPG Spring Intern; Timothy Donahue, 2006 AGI/AIPG Summer Intern; and Rachel Bleshman, 2006 AGI/AAPG.

Background section includes material from AGI's Outer Continental Shelf Leasing and Royalties Update for the 108th Congress.

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

Last revised on October 10, 2006.

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