Regulations Related to the Outer Continental Shelf Moratoria and Implications of Not Renewing the Moratoria |
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From 1982 through 2008, Congress annually enacted appropriations riders prohibiting the Minerals Management Service (MMS) of the U.S. Department of the Interior from conducting activities related to leasing, exploration, and production of oil and natural gas on much of the Federal OCS [11]. Further, a separate executive ban (originally put in place in 1990 by President George H.W. Bush and later extended by President William J. Clinton through 2012) also prohibited leasing on the OCS, with the exception of the Western Gulf of Mexico, portions of the Central and Eastern Gulf of Mexico, and Alaska. In combination, those actions prohibited drilling along the Atlantic and Pacific coasts, in the eastern Gulf of Mexico, and in portions of the central Gulf of Mexico. The Gulf of Mexico Energy Security Act of 2006 (Public Law 109-432) imposed yet a third ban on drilling through 2022 on tracts in the Eastern Gulf of Mexico that are within 125 miles of Florida, east of a dividing line known as the Military Mission Line, and in the Central Gulf of Mexico within 100 miles of Florida. High oil and natural gas prices in recent years have affected policy toward oil and gas exploration and development of the OCS. On July 14, 2008, President Bush lifted the executive ban; and on September 30, 2008, Congress allowed the congressional ban to expire. Although the ban through 2022 on areas in the Eastern and Central Gulf of Mexico remains in place, lifting the executive and congressional bans removed key obstacles to development of the Atlantic and Pacific OCS. Jurisdiction The Submerged Lands Act (SLA) passed by Congress in 1953 established the Federal Government’s title to submerged lands located on most of the OCS [12]. States were given jurisdiction over any natural resources within 3.45 miles (3 nautical miles) of the coastline, with the exception of Texas and the west coast of Florida, where the SLA extends the States’ jurisdiction to 10.35 miles (9 nautical miles). The Outer Continental Shelf Lands Act (OCSLA), also passed in 1953, defined the OCS, separate from geologic definitions, as any submerged land outside State jurisdiction [13]. It also reaffirmed Federal jurisdiction over those waters and all resources therein. Further, it outlined Federal responsibilities for managing and maintaining offshore lands and authorized the Department of the Interior to formulate regulations pertaining to the leasing process and to lease the defined areas for exploration and development of OCS oil and natural gas resources. The Coastal Zone Management Act of 1972 (CZMA) [14] gave States more input on activities in waters under Federal jurisdiction that affected their coastlines, encouraged coastal States to develop Coastal Zone Management Plans, and required State review of Federal actions, such as offshore leasing, that affect land and water use in their coastal areas. By virtue of the CZMA, States have the power to object to any Federal action that they deem inconsistent with their Coastal Zone Management Plan. At present, the vast majority of the U.S. coastline is covered by such plans. MMS 5-Year Leasing Program The OCSLA was amended in 1978 to establish specific leasing guidelines, which included the development of a 5-year leasing program. The purpose of the leasing program is to schedule all specified and proposed lease sales within a given 5-year period. The amendment also specifies a number of requirements on which the decision to include specific areas in the 5-year leasing program are to be based, including:
For every 5-year leasing program, the MMS publishes a comprehensive document detailing the information and reasoning behind the leasing decisions. If a block is not included in the current 5-year leasing program, it may not be leased during the program. The first 5-year leasing program covered the period from 1980 to 1985; the current program covers the period from 2007 to 2012. In anticipation of the possible lifting of the congressional moratorium after President Bush had lifted the executive moratorium, the MMS began initial steps toward the development of a new 5-year leasing program that would take into consideration the newly released areas. Development of the new program, which would go into effect in 2010 rather than 2012 as previously planned, began on August 1, 2008. Although its action would advance the start date for the next leasing plan by 2 years, the MMS cautioned that the development of a new 5-year leasing program remains a multi-step, multi-year process that includes three separate public comment periods, two separate draft proposals, and development of an environmental impact statement before completion of the final proposal. The final proposal must then be approved by the Secretary of the Interior. The MMS has indicated that a new 5-year leasing program could not go into effect until mid-2010, which would be the earliest that any block in the areas previously under moratoria could be offered for lease. Leasing, Exploration, and Development Once the 5-year leasing program is in place, the first lease sale can be offered. The actual leasing process will take 1 to 2 years, requiring preparation of draft and final environmental impact statements, periods of public comment, notices regarding the sale, approval from the governors of States bordering the area covered by the lease as mandated by the CZMA, a bidding period, the receipt and evaluation of bids, and the determination of winning bidders for each block offered for sale. Successful bidders cannot simply begin operations when they have obtained a lease. An exploration plan must be developed and filed and must undergo technical and environmental review by the MMS before any drilling can commence. Only after obtaining the required approvals can the lease holder evaluate the area and conduct exploratory drilling, which can take from 1 to 3 years in the shallow offshore and up to 6 years in the deep offshore areas. When an initial discovery is made, a development plan must be filed for technical and environmental review by the MMS before any production can begin. Developmental drilling, along with necessary approvals, can take another 1 to 3 years. For major facilities, the MMS conducts on-site inspections, sometimes jointly with the U.S. Coast Guard, before production is allowed to begin. Air emissions permits and water discharge permits must also be obtained from the EPA. Thus, the total time required to obtain a lease, explore and develop the area, and begin actual production is between 4 and 12 years, or potentially more. Revenue Once awarded a lease, the lease holder pays a one-time fee plus annual rent for the right to develop the resources in the block. In addition, lease holders pay royalties to the MMS based on the value of any natural gas and oil actually produced. MMS, in turn, disburses the revenues to the appropriate Federal or State agencies. The amounts collected and distributed by the MMS in bonuses, rents, and royalties from Federal offshore oil and gas leases totaled $7.0 billion in fiscal year 2007 and $8.1 billion in fiscal year 2008 [15]. Under OCSLA, coastal States are entitled to 27 percent of the revenue from leases of any blocks in Federal waters that fall partially within 3 miles of the State’s seaward jurisdictional boundary [16], a provision intended to compensate the States for any damage to or drainage from natural gas and oil resources in State waters that are adjacent to Federal leases. Between 1986 and 2003, coastal States received more than $3.1 billion in revenue from such leases [17]. In addition to the revenues defined by OCSLA, EPACT2005 allocated additional revenues to the States through the establishment of a new coastal impact assistance program that provides $250 million from OCS revenues per year for fiscal years 2007 to 2010 to six energy-producing coastal States: Alabama, Alaska, California, Louisiana, Mississippi, and Texas [18]. The Gulf of Mexico Energy Security Act of 2006 includes additional revenue-sharing provisions (for Alabama, Louisiana, Mississippi, and Texas and their coastal political subdivisions) for specific leases in the Central and Eastern Gulf of Mexico. Future Directions Considerable uncertainty still surrounds the issue of offshore drilling in previously restricted areas. Although the congressional moratorium was allowed to expire, some members of Congress have stated publicly that they will raise the issue again in 2009. They are joined by a number of groups and individuals who favor the moratorium and predict that it will be reinstated either partially or fully by the next Congress. Until further action is taken, however, the Atlantic and Pacific coasts are available to be leased, and offshore drilling in those areas could become a reality. The key issue in developing the OCS is timing. A minimum of 4 years will be required before production from any new leases can begin, and many leases will require longer lead times. In addition, there is considerable uncertainty about the actual size of oil and natural gas resources in areas that have been or remain under moratorium. The actual level of technically recoverable resources also may differ from the current MMS mean resource estimate of approximately 14 billion barrels of oil and 85 trillion cubic feet of natural gas in the Atlantic and Pacific areas that were just opened for leasing. An estimated additional 3.7 billion barrels of oil and 21 trillion cubic feet of natural gas in the central and eastern Gulf of Mexico remain under moratorium through 2022 [19].
Contact: Phyllis Martin/Dana Van-Wagener
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