LEASING OIL AND NATURAL GAS RESOURCES - BOEM · 2019. 10. 14. · In the search for oil and natural...

OUTER CONTINENTOUTER CONTINENTOUTER CONTINENTOUTER CONTINENTOUTER CONTINENTAL SHELFAL SHELFAL SHELFAL SHELFAL SHELF LEASING OIL AND NA LEASING OIL AND NA LEASING OIL AND NA LEASING OIL AND NA LEASING OIL AND NATURAL GTURAL GTURAL GTURAL GTURAL GAS RESOURAS RESOURAS RESOURAS RESOURAS RESOURCESCESCESCESCES

U.S. DEPARTMENT OF THE INTERIORMINERALS MANAGEMENT SERVICE

OUTER CONTINENTOUTER CONTINENTOUTER CONTINENTOUTER CONTINENTOUTER CONTINENTAL SHELFAL SHELFAL SHELFAL SHELFAL SHELF LEASING OIL AND NA LEASING OIL AND NA LEASING OIL AND NA LEASING OIL AND NA LEASING OIL AND NATURAL GTURAL GTURAL GTURAL GTURAL GAS RESOURAS RESOURAS RESOURAS RESOURAS RESOURCESCESCESCESCES

U.S. Department of the InteriorMinerals Management Service

Chapter 1. INTRODUCTION .................................................................................................... 1

Chapter 2. BACKGROUND ....................................................................................................... 2Location, Description, and Extent of the Outer Continental Shelf ........................................... 2

Location and Description ..................................................................................................... 2Extent ................................................................................................................................... 2

History of Offshore Petroleum Exploration and Development ................................................ 2Discoveries and Advancements ........................................................................................... 3Federal Leasing .................................................................................................................... 5Environmental Record ......................................................................................................... 5

Geology of Petroleum Occurrence ........................................................................................... 5Expanding Frontier—Deepwater .............................................................................................. 6Liquefied Natural Gas............................................................................................................... 7Methane Hydrates ..................................................................................................................... 7

Chapter 3. LEASING FRAMEWORK ..................................................................................... 9The 5-Year Program and Leasing Schedule .............................................................................. 9MMS Advisory Committees ................................................................................................... 11Environmental Studies ............................................................................................................ 11

History ................................................................................................................................ 11Studies Development Plan and National Studies List ........................................................ 12Procurement and Review Processes ................................................................................... 13Effect and Application of Socioeconomic and Environmental Studies ............................. 13

Collection of Geophysical and Geological Data .................................................................... 13Geophysical Surveys Method (1) ....................................................................................... 14Geological Surveys Method (2) ......................................................................................... 14

Area of Hydrocarbon Potential ............................................................................................... 15

Chapter 4. LEASING PROCEDURES FOR THE OCS........................................................ 16Call for Information and Nominations/Notice of Intent to Prepare an

Environmental Impact Statement ....................................................................................... 16Area Identification .................................................................................................................. 17Draft Environmental Impact Statement .................................................................................. 18Public Hearing ........................................................................................................................ 20Final Environmental Impact Statement .................................................................................. 20Post-EIS Environmental Assessment ...................................................................................... 20Coastal Zone Management Consistency Determination ......................................................... 21Proposed Notice of Sale ......................................................................................................... 21Final Notice of Sale ................................................................................................................ 23

Table of Contents

i

Sale .............................................................................................................................................. 23Decision to Accept or Reject Bids .............................................................................................. 23Issuance of a Lease...................................................................................................................... 24

Chapter 5. STATUTORY AND REGULATORY AUTHORITY .............................................. 26Laws............................................................................................................................................ 26

The Submerged Lands Act ..................................................................................................... 26The Outer Continental Shelf Lands Act and its Amendments ............................................... 26Other Laws That Govern the OCS ......................................................................................... 27

Regulations ................................................................................................................................. 28Exploration Plans ................................................................................................................... 28Development and Production Plans ....................................................................................... 29Oil-Spill Contingency Plans ................................................................................................... 30Hydrogen Sulfide Contingency Plans .................................................................................... 31Environmental Information .................................................................................................... 31Air Emissions Information ..................................................................................................... 31Structure Removal .................................................................................................................. 32Coastal Zone Management Consistency Review and Appeals for Plans ............................... 33Coastal Zone Consistency Appeals ........................................................................................ 33

Operating Regulations, Stipulations, Notices, and Conditions of Approval .............................. 34Operating Regulations ............................................................................................................ 34Stipulations ............................................................................................................................. 34Notices to Lessees and Operators .......................................................................................... 34Conditions of Approval .......................................................................................................... 34

Presidential Proclamation on the Exclusive Economic Zone ..................................................... 34OCS Moratoria and Deferrals ..................................................................................................... 35Lease Buybacks .......................................................................................................................... 36

Chapter 6. REVENUES ................................................................................................................ 37

Chapter 7. OPERATIONS SUMMARY ...................................................................................... 39

Chapter 8. OTHER MULTIPLE USE RESOURCES ON THE OCS...................................... 41

APPENDICES ................................................................................................................................. 43

Appendix A: Glossary ..................................................................................................................... 45Appendix B: Abbreviations ............................................................................................................. 48Appendix C: OCS Milestones and Influences (1896-2005) ............................................................ 49

ii

Contents continued

iii

FIGURES

Figure 1. Onshore Drilling Rig in Titusville, Pennsylvania ....................................................... 2Figure 2. Summerland Oil Field Circa Early 1900 ..................................................................... 3Figure 3. Early Gulf of Mexico Well .......................................................................................... 3Figure 4. Shell’s “Bullwinkle” Platform; World’s Tallest Pile Supported Steel

Platform (1,736 feet in total height) ....................................................................... 4Figure 5. BP’s “Northstar” Man-made Gravel Island ................................................................. 4Figure 6. Structural and Stratigraphic Traps ............................................................................... 6Figure 7. SWSS Cetacean Study .............................................................................................. 12Figure 8. Seismic Boat ............................................................................................................. 14Figure 9. OCS Leasing Procedure ............................................................................................ 16Figure 10. EIS Content ............................................................................................................... 19

IntroductionAs a bureau within the Department of the Interior (DOI), the Minerals Management Service (MMS)is responsible for the management of offshore energy and minerals on the 1.76 billion acres of theOuter Continental Shelf (OCS), while protecting the human, marine, and coastal environmentsthrough advanced science and technology research. The MMS’s Associate Director for OffshoreMinerals Management (OMM) manages the OCS Leasing Program which includes over 8,000active leases. All but a small percentage of these are located in the Gulf of Mexico (GOM). Inaddition, the OCS alone provides about 30 percent of the oil and over 20 percent of the naturalgas produced domestically, as well as much of the sand used for coastal restoration throughoutthe Nation’s coastal regions. Additionally, the MMS is responsible for managing OCS resourcesto deliver a clean and diverse supply of renewable energy to the Nation while involving interestedand affected parties.

Besides the OCS leasing program, the MMS also has the responsibility for managing mineralrevenues on Federal lands. The Associate Director for Minerals Revenue Management (MRM)oversees the management of these revenues. The MRM collects, accounts for, and disbursesmineral revenues from federal and Indian lands, with Fiscal Year (FY) 2004 disbursements ofapproximately $8 billion and more than $143 billion since 1982. The annual disbursement ofnearly $1 billion a year to the Land and Water Conservation Fund from OCS receipts pays forongoing cooperative conservation, grants to states, and Federal land acquisition.

The MMS is committed to an orderly and timely development of the Nation’s resources, protectionof the environment, and receipt of fair market value for its resources.

With this commitment in mind, this publication hopes to help clarify and to promote understandingof the OCS Oil and Gas Leasing Program. It describes the Program’s background, its frameworkand process, applicable laws and regulations, operations, and the revenues it generates.

1

Chapter One

BackgroundLocation, Description, and Extentof the Outer Continental Shelf

Location and Description. In 1953, a Federalstatute, the Outer Continental Shelf Lands Act(OCSLA), was established to manage Federaloffshore areas for the exploration of mineralresources. The term outer continental shelfmeans all submerged lands lying seaward andoutside of the area of lands beneath navigablewaters of each of the respective States subjectto the jurisdiction and control of the UnitedStates. In addition, in 1958, the GenevaConvention on the continental shelf definedthe term continental shelf as those submergedoffshore areas lying seaward of the territorialsea to a depth of 200 meters (656 feet) andbeyond.

Extent. The contour, configuration, and extentof the OCS vary from one coastal area toanother. The continental shelf is relativelynarrow along the Pacific coast; wide alongmuch of the Atlantic coast and Gulf of Alaska(GOA); and widest in the GOM and aroundwestern and northwestern Alaska. Thesubmerged seaward extension of a continentis known as the continental margin.

In most areas, this submerged extension iscomposed of the gently sloping continentalshelf, the steeper gradients of the continentalslope, and the continental rise. Also, theextent of Federal jurisdiction over the OCS,not confined to the 200-meter contour, isdetermined by the Act, which is described inChapter Five of this publication addressingstatutory authority.

History of Offshore PetroleumExploration and Development

The exploration of offshore oil and natural gasresources began in the late 1800’s. In 1896,an offshore well was drilled off the coast ofSummerland, California, thirty-eight yearsafter the first oil well was drilled onshore inTitusville, Pennsylvania (see figure 1). Oiland natural gas seeps observed along theseashore at low tide encouraged furtherdevelopment of this area.

Chapter Two

Figure 1. Onshore Drilling Rig in Titusville,Pennsylvania

2

In 1887, H.L. Williams came up with the ideaof building a wharf and erecting a drilling rigon it. His first offshore well extended about 90meters (300 feet) into the ocean. As expected,it was a good producer and before long entre-preneurs built several more wharfs. Additionalwells were drilled from piers generally 300-500feet long. The longest pier stretched over 1,200feet into the water. Approximately 400 wellswere drilled in this manner. Some of thesewells even produced from as deep as 600 feetbelow sea level (see figure 2).

Discoveries and Advancements. By 1910,America had quickly turned to oil as its primaryenergy resource. The invention of the internalcombustion engine increased the consumptionof gasoline. At the same time, Americans werediscovering new and faster ways to retrieve oil.The steel cable was used in place of rope forcable tool drilling, and by 1919, the firstdiamond drill bit was used. Scientists becameinvolved with the search for oil; and in 1926,modern seismology was developed, from whichseismometer surveys were used for detectingand identifying oil.

What marked the petroleum industry’s firstsuccessful venture into open, unprotectedwaters was the 1938 discovery of the CreoleField (see figure 3). The Pure Oil/Superior Oildiscovery well was drilled from a 100-300 footdrilling platform secured to a foundation oftimber piles set in 13-14 feet of water.

In the mid-1940’s, significant changes in theoil industry were made as America was makingits transition from a wartime to a peacetimeeconomy. The petroleum industry witnessedthe end of government controls on crude-oilprices and there was an enormous publicdemand for oil and natural gas.

In November 1947, a well was drilled almostout of sight of land. It was completed in 16 feetof water in the Ship Shoal area, approximately12 miles south of Terrebonne Parish, Louisiana.The well was the first to be drilled in openwater from a fixed platform/drilling tendercombination, which was a major breakthroughin drilling-unit design for offshore use. TheKerr-McGee Oil Company well produced 600barrels a day and established a pattern forsupporting offshore wells from onshore bases.

Figure 3. Early Gulf of Mexico Well

3

Figure 2. Summerland Oil Field Circa Early1900

Chapter Two continued

The industry rapidly continued to evolvethrough the 1950’s. Revenue generated fromthe production of oil became the second-largestrevenue generator for the country, after incometaxes.

In the early 1970’s, as petroleum productionfrom the Lower 48 states entered a decline, anew discovery of oil at Prudhoe Bay on theNorth Slope of Alaska offered the United Statesthe promise of a significant new source ofcompetitive domestic supply on a world classscale. The discovery was initially estimated tobe 9.6 billion barrels of oil, nearly double thesize of the largest field ever found in NorthAmerica. Despite high costs, hostile climate,untested technology, unsettled land claimissues, and major environmental challenges,supply from Prudhoe Bay came online in 1977,offsetting most of the supply decline in Lower48 states through the mid-1980’s.

In the search for oil and natural gas in offshoreareas, industry today has extended andimproved drilling and production technology.The technology used now for exploration andproduction of petroleum in deeper waterillustrates these advancements. Conventionalsteel-jacketed production platforms stand inover 1,300 feet of water off the Louisiana coast.

In 1980, Shell Oil Company installed a fixedplatform, named Cognac, in 1,025 feet of water,then the world’s tallest platform. More than adecade later in 1991, Shell installed Bullwinkle,the world’s tallest standing structure in 1,350feet of water (see figure 4).

In 1983, a compliant guyed-tower productionplatform (Exxon’s Lena) was installed in 1,000feet of water, 110 miles southeast of NewOrleans, Louisiana. In 1984, the drillshipDiscoverer Seven Seas drilled an exploratory

well in 6,952 feet of water off the coast ofNew Jersey. Kerr-McGee drilled in the GOMin 10,942 feet of water in 1988. By 1997,production in the Gulf exceeded 5,000 feetwater depth with Shell’s Mensa project.

Offshore structure technology has also contin-ued to evolve for projects from artificial gravelislands to specially designed caisson-retainedislands and ice-resistant module units (seefigure 5). These advancements in offshoredrilling and production technology haveallowed potential domestic oil and naturalgas resources to increase. Many of the morenotable milestones and influences in the U. S.offshore history are noted in appendix C of thispublication.

4

Figure 5. BP’s “Northstar” Man-madeGravel Island

Figure 4. Shell’s “Bullwinkle” Platform;World’s Tallest Pile Supported SteelPlatform (1,736 feet in total height)

5

Federal Leasing. The OCS lands are leasedby the Federal Government to industry, whichexplores, develops, and produces oil andnatural gas. The potential leasable area is thesubmerged land generally 3 geographical milesfrom a State’s coast to a line about 200-300miles offshore.

In 1954, the first offshore oil and natural gaslease sale was held by the Federal Government.This lease sale resulted from a long legaldispute between the Federal Government andadjacent states beginning in 1945. In that year,President Truman declared that seabed naturalresources beyond the 3 mile jurisdiction of mostcoastal states were the property of the UnitedStates. Consequently, the States of Louisianaand Texas sued the Federal Government,claiming they were the sole owners of theoffshore seabed adjacent to their coasts. In1950, the U.S. Supreme Court decided in favorof the Federal Government, granting the UnitedStates exclusive rights to the seabed from theshoreline out to 27 miles.

In 1953, the OCSLA was passed by Congress,dividing the seabed between the FederalGovernment and the States. The FederalGovernment retained control of the seabedbeyond the three-mile limit (3 leagues for Texasand Florida’s east coast), which became knownas the OCS. Coastal states were granted controlover the seabed within 3 miles or 3 leagues ofthis line. In fact, roughly 50 percent of theNation’s remaining undiscovered oil and naturalgas resources may be found on the OCS.

On average, in recent years, approximately $5billion per year is collected and distributed bythe MMS from bonuses, rents, and royaltiesfrom Federal offshore mineral leases. Annually,nearly $1 billion goes into the Land and WaterConservation Fund for the acquisition and

development of state and Federal parks andrecreation lands.

Environmental Record. According to a recentNational Academy of Sciences report, seepsfrom the earth introduce about 1,700 barrelsof oil per day in U.S. marine waters, which isabout 150 times the amount from OCS oil andnatural gas activities. For the past 20 years,less than 0.001 percent of the oil produced inU.S. state and Federal waters has been spilled.

On January 28, 1969, Union Oil’s Platform Aexperienced an uncontrolled blowout in theDos Cuadras Field off Santa Barbara,California. A significant amount of crude oilwas spilled as a result. Since that time, majorsteps have been taken to require more stringentregulatory safe-guards to promote safer,pollution-free operations.

Congress passed several acts after the SantaBarbara oil spill that spurred the developmentof oil spill regulation and research. These lawsincluded the National Environmental PolicyAct (NEPA), which requires a detailedenvironmental review before any major orcontroversial Federal action; the Clean AirAct (CAA), which regulates the emission ofair pollutants from industrial activities; andthe Coastal Zone Management Act (CZMA),which requires state review of Federal actionthat would affect land and water use of thecoastal zone. In 1977, the Clean Water Act(CWA) was passed to regulate the dischargeof toxic and nontoxic pollutants into surfacewaters.

Geology of Petroleum Occurrence

Petroleum is found beneath the surface of theearth in many parts of the world, onshore andoffshore. The key geologic requirements for

petroleum sources are (1) source rocks—organic-rich sediments that serve as a sourceof hydrocarbons, (2) a favorable thermal historyto transform the organics into hydrocarbons,(3) reservoir rocks—porous and permeablerocks where the hydrocarbons can accumulate,and (4) an impermeable trapping mechanism(cap rock) to prevent the hydrocarbons fromescaping. In addition, oil is commonlyassociated with natural gas and salt-waterwithin porous rocks. Gas is lighter than oil andwater and tends to accumulate at the top of anyreservoir. Oil, heavier than natural gas andlighter than water, accumulates below the gasand above the water.

Many scientists believe that most hydrocarbonsare associated with rocks that were formed ordeposited in a marine environment millions ofyears ago. Great volumes of organic andinorganic matter accumulated in these marineenvironments and, as this material continuedto accumulate, the weight of the overlyingsedimentary pile created great pressure.

This pressure, together with the heat of theearth, is postulated to have produced oil andnatural gas from organic matter. Scientists haveproven that organic matter may be transformedinto oil and natural gas by long, continued heatand pressure aided by bacterial action. Gradu-ally, over millions of years, some of the oil andnatural gas formed migrated into porous andpermeable rocks.

Porous and permeable rocks, such as sandstone,act as reservoirs for oil and natural gas ifgeologic conditions create a trap. If the trapresults from the structure of the rock—such asa fold, salt dome intrusion, or fault—it is calleda structural trap. If the trap results from loss ofporosity or permeability of the host rock, which

Expanding Frontier—Deepwater

Deepwater production began in 1979 whenShell’s Cognac Field came online, followedfive years later with ExxonMobil’s Lena Field.Both of these new developments relied onextending the limits of platform technologyused to develop the shallow water areas of theGOM. Over the following years, deepwaterexploration and development grew withtremendous advances in technology.

Traditionally, deepwater is defined as thosewater depths greater than or equal to 1,000 feetand ultra-deepwater as those water depthsgreater than or equal to 5,000 feet.

In the late 1990’s, a new era began in theGOM’s OCS with intense interest in the oiland natural gas potential of the deeper waterareas. There were favorable economic deep-water discoveries and significant leasing atthat time.


6

prevents further migration of the oil and naturalgas, it is known as a stratigraphic trap. Often,the hydrocarbon migration is halted by acombination of structural and stratigraphicfactors (see figure 6).

Figure 6. Structural and Stratigraphic Traps

In February of 1997, there were 17 new pro-ducing deepwater projects, up from 6 projectsat the end of 1992. Since that time, industryhas rapidly advanced into deepwater. At theend of 2003, there were 86 such producingprojects in the GOM. Deepwater rates haverisen by 100,000 barrels of oil per day and400 million cubic feet of natural gas per daysince 1997.

In the past decade, there has been an overallexpansion in all phases of deepwater activity.Of the 8,000 active leases located in the GOM,54 percent are classified in deepwater. Deep-water oil production rose over 840 percentand deepwater gas production increased about1,600 percent during that period.

The OCS Deepwater Royalty Relief Act(DWRRA) has had a significant impact ondeepwater activities. This legislation providesincentives for operators to develop fields inwater depths greater than 200 meters (656 feet).Reduction of royalty payments is also availablethrough an application process for somedeepwater fields that were leased prior to theDWRRA but have not yet gone on production.

Liquefied Natural Gas

Due to declining natural gas production in theUnited States and increased demand, liquefiednatural gas (LNG) will play an increasinglyimportant role in the natural gas industry andenergy markets in the years to come. Today, allbut one of this Nation’s existing LNG importterminals are located onshore and, as currentlydesigned, are unable to handle additionalsupplies needed to meet industrial, commercial,and residential needs. With improvements inliquefaction and regasification technologies,decreasing costs for the construction and

operation of LNG tankers and facilities, andnew regulations allowing the importation ofnatural gas from international sources, pro-posals for the construction of both shoresideand offshore import facilities in the UnitedStates have reached unprecedented levels.

In November of 2002, the Deepwater Ports Act(DPA) of 1974 was amended to allow importa-tion of natural gas, including LNG, and toprovide for accelerated review of deepwaterport applications. Under a delegation ofauthority from the Secretary, U.S. Departmentof Transportation (DOT), the MaritimeAdministration was given responsibility forthe issuance of both a Record of Decision(ROD) on, and a license for, deepwater portprojects. The role of application administration,including NEPA compliance, and interagencycoordination, falls to the U.S. Coast Guard(USCG). The USCG also is responsible forensuring the safety of all marine operations atLNG terminals and tankers in U.S. coastalwaters.

Under the DPA, the MMS has a number ofboth specific and non-specific functions. Mostnotably, the Secretary of the DOI/MMS, mustdetermine the fair market rental value for anyport that is to be located in the OCS. Throughagreement with the USCG, MARAD, and theOffice of Pipeline Safety, the MMS also isresponsible for the issuance of right-of-waygrants and permits for pipelines associatedwith the deepwater port.

Methane Hydrates

Gas hydrates are another potential source ofhydrocarbon energy. Hydrates are a crystallinesolid similar to ice. Their crystalline structureis stabilized by a gas molecule located within a

7

8

cage of water molecules. Many gases havemolecular sizes suitable to form hydrate, butmost marine gas hydrates that have beenanalyzed are methane hydrates.

In addition, gas hydrates are stable at thetemperatures and pressures that occur inocean-floor sediments at water depths greaterthan about 300 meters, and at these pressuresthey are stable at temperatures above those forice stability. Gas hydrates concentrate largeamounts of methane in seafloor sediments.

The U.S. Geological Survey (USGS) scientistsestimate that the United States has in placemethane resources in methane hydrates ofabout 320,000 trillion cubic feet (TCF)(statistical mean estimates); approximatelyhalf of these resources occur offshore Alaska,and most of the remainder are beneath thecontinental margins of the lower 48 states.Natural gas hydrate resources appear to exceedthe remaining recoverable conventional naturalgas resources of the Nation and the world(source: USGS Fact Sheet FS-021-01, March,2001). The MMS is currently conducting astudy for the assessment of natural gas hydrateson the OCS. It should be completed in 2006.

The U.S. natural gas technically recoverableresources are approximately 1200 TCF (source:Energy Information Administration, AnnualEnergy Outlook, 2002). The total U.S.remaining natural gas resources are estimatedto by 1779 TCF (source: National PetroleumCouncil, 1999). The world proved natural gasreserves were estimated to be between 6,079and 6,806 TCF (source: Energy InformationAdministration in the Oil and Gas Journal andin World Oil, 2004). The world undiscoverednatural gas resources are estimated at 5,196TCF (source: USGS, 2000).


Leasing FrameworkThe 5-Year Program and LeasingSchedule

The preparation of the schedule for the OCSoil and natural gas lease sales is governed bySection 18 of the OCSLA, which was added tothe Act in 1978. Before then, the schedulingof OCS lease sales was a discretionary actionof the Secretary of the Interior who, in theearly 1970’s, issued the first 5-year OCS oiland natural gas leasing schedule. The purposeof a schedule is to increase the predictability ofsales in order to facilitate planning by industry,affected States, and the general public.

Section 18 of the OCSLA requires the Secretaryof the Interior to prepare and maintain an OCSoil and natural gas leasing program. Whenapproved, the leasing program consists ofscheduled lease sales for a 5-year period, alongwith policies pertaining to the size and locationof sales and the receipt of fair-market value.The schedule indicates the timing and locationof sales and shows the presale steps in theprocess that lead to a competitive sealed bidauction for a specific OCS area.

To facilitate the scheduling of and preparationfor sales in a 5-year program, the OCS isdivided into administrative geographical unitscalled planning areas. Many of the OCSplanning areas were and continue to be underCongressional moratoria or Presidentialwithdrawal and are not available for leasingconsideration.

The leasing program that is adopted must bebased on the following considerations, as setforth in Section 18 (a) (2) of the OCSLA:

1. existing information concerning thegeographical, geological and ecologicalcharacteristics of such regions;

2. an equitable sharing of developmentalbenefits and environmental risks amongthe various regions;

3. the location of such regions with respectto, and the relative needs of, regional andnational energy markets;

4. the location of such regions with respectto other uses of the sea and seabed,including fisheries, navigation, existingor proposed sealanes, potential sites ofdeepwater ports, and other anticipateduses of the resources and space of theOCS;

5. the interest of potential oil and natural gasproducers in the development of theseresources as indicated by exploration ornomination;

6. laws, goals, and policies of affected Statesthat have been specifically identified bythe Governors of such States as relevantmatters for the Secretary’s consideration;

7. the relative environmental sensitivity andmarine productivity of different areas ofthe OCS; and

8. relevant environmental and predictiveinformation for the different areas of theOCS.

9

Chapter Three

Chapter Three continued

On the basis of these considerations, theSecretary is required to adopt a 5-year program.This program is to reflect a proper balanceamong the potential for the discovery of oil andnatural gas, the potential for environmentaldamage, and the potential for adverse effects onthe coastal zone. The 5-year program also mustprovide for the receipt of fair market value bythe Federal Government for land leased andrights conveyed.

In preparing a new 5-year program, theSecretary solicits comments from coastal StateGovernors and localities, tribal governments,the public, the oil and natural gas industry,environmental groups, affected FederalAgencies, and the Congress. The MMSrequests comments at the start of the processof developing a new program and followingthe issuance of each of the first two versions:(1) the draft proposed program with a 60-daycomment period; and (2) the proposed programwith a 90-day comment period. The third andlast version, the proposed final program, isprepared with a 60-day notification periodfollowing submission to the President andCongress. After 60 days, if Congress does notobject, the Secretary may approve the program.The entire process takes from 18 to 36 monthsto complete.

In addition to the steps required by Section 18of the OCSLA, an Environmental Impact State-ment (EIS) on the 5-year program is prepared.During the comment period on the draft EIS,public hearings are held in various coastallocations around the Nation.

The first 5-year leasing schedule prepared underthe Section 18 of the OCSLA was issued inJune 1980. It included 36 proposed sales from

June 1980 to June 1985, including 5 reofferingsales.

This schedule was challenged in the U.S. Courtof Appeals for the District of Columbia (court),but the court allowed leasing to continue.

Following the guidance of the court, the MMSformulated a new program beginning in 1982,which provided for 41 sales from 1982 to 1987.This program also was subject to litigation. In1983, the court issued an opinion stating thatthe 1982 schedule was consistent with legalrequirements. The next 5-year leasing programwas approved on July 2, 1987.

The MMS held 16 sales in 21 planning areasconsidered for leasing in the 1987-1992 leasingprogram. In December 1988, the U.S. Court ofAppeals for the District of Columbia ruled thatthe final EIS for the proposed 5-Year OCSProgram from 1987-1992 failed to analyze thecumulative impacts of the proposed leasingprogram on migratory species. This was thelast 5-Year program that was litigated.

Twelve sales were held in 10 planning areasconsidered for leasing in the 1992-1997 leasingprogram. This program embraced the advice ofthe OCS Policy Committee and reflects thebeginning of a long-term movement to reduceconflict and engender consensus in the OCSprogram.

Thirteen sales were held in 8 planning areasconsidered for leasing in the 1997-2002 leasingprogram. Twenty sales were scheduled in 8planning areas considered for leasing in the2002-2007 leasing program. These leasingprograms were developed with the principleof working in partnership with affected partiesto develop reliable schedules of proposed sales.

10

In 2005, the MMS began a 2-year process todevelop the size, timing, and location of pro-posed lease sales for the 2007-2012 leasingprogram.

Once a schedule is approved, it is reviewedannually. Revisions, deemed insignificant likedelays or cancellations of a sale, may be madewithout having to undergo the steps required todevelop a new 5-year schedule.

MMS Advisory Committees

The MMS has three advisory committees:(1) the OCS Policy Committee, (2) the RoyaltyPolicy Committee, and (3) the OCS ScientificCommittee. They are chartered under theprovisions of the Federal Advisory CommitteeAct (FACA). For specific details on thesecommittees, please visit the website athttp:/www.mms.gov/mmab/mmab2.htm.

Through the Director of the MMS, eachcommittee provides advice to the Secretary ofthe Interior on managing the mineral resourceson the OCS and Federal and Indian mineralrevenues to enhance public and trust benefit,promote responsible use, and realize fair value.The OCS Policy Committee works closely withthe Associate Director for OMM on policiesrelated to all aspects of leasing, exploration,and development of OCS resources in anenvironmentally sound and safe manner. TheRoyalty Policy Committee works closely withthe Associate Director for MRM on revenuemanagement and other mineral-related policies,including collecting, verifying, and distributingmineral revenues from Federal and Indian landsin timely fashion. The OCS ScientificCommittee works closely with the MMS ChiefScientist to address issues pertaining to the

feasibility, appropriateness, and scientific valueof the research proposed and conducted underthe auspices of the MMS EnvironmentalStudies Program (ESP).

Members are appointed to each committee bythe Secretary of the Interior. The membershipcriteria can be found in each committee’scharter. Please visit this website for moredetails:http:/www.mms.gov/mmab/mmab2.htm.

Subcommittees may be established as neededby each committee to address issues in-depth.The subcommittees must report back to therespective full committee. Reports, recom-mendations, and/or resolutions adopted by therespective committees are forwarded to theSecretary for consideration.

Committee activities are reported annually inthe Report to the Congress from the Presidenton Federal Advisory Committee Activities. Itcan be accessed through the FACA database,which is used by Federal Agencies continuouslyto manage an average of 1,000 advisory com-mittees governmentwide. This database also isused by the Congress to perform oversight ofrelated Executive Branch programs and by thepublic, the media, and others to stay abreast ofimportant developments resulting from advisorycommittee activities.

Environmental Studies

History. The purpose of the ESP is to gatherand develop information needed in predicting,assessing, and managing the possible affectsof the OCS oil and natural gas activities onthe human, marine, and coastal environments.

11


The studies program was initiated in 1973 witha series of projects that synthesized availableinformation on the environmental and economiccharacteristics of the various OCS leasing areas.The program grew rapidly with an emphasison benchmark studies. These studies weredesigned to describe the existing physical,chemical, geological, and biological compo-nents of the OCS lease areas in a manner thatwould allow sound statistical comparisons toconditions in the area after the completion ofoil and natural gas activities.

In 1977-1978, program emphasis shifted. As aresult of recommendations received from theOCS Advisory Board and ultimately theNational Research Council, emphasis wasplaced on relating research efforts more directlyto the specific resource-management decisionsassociated with the OCS leasing program (seefigure 7).

Since 1981, a growing emphasis in the programhas been toward a better understanding ofoceanographic processes that influence thelong-term cumulative effects of the OCS oiland natural gas development and productionactivities. Since 1982, increased emphasis alsohas been placed on synthesis and distribution

of studies information. Through FY 2003, over$750 million has been invested in the OCSenvironmental and socioeconomic studies.

Studies Development Plan and National StudiesList. The assessment of information needs andthe development of environmental studies areconducted annually. The process begins whenthe MMS establishes and disseminates policyand guidance for the preparation of regionalStudies Development Plans (SDP). RegionalSDP’s are prepared with input from internaland external regional consultants, includingprior advice from the OCS ScientificCommittee. These SDP’s include statementsof information needs, the regional perspectiveon the priorities of these needs, cost estimates,and a brief description of each proposed study.

Because the total cost of all studies nominatedfor funding during any fiscal year has histori-cally exceeded available funds, EnvironmentalStudies Plan management in the Regions andHeadquarters work together to establish thepriority of each proposed study on a NationalStudies List (NSL). Important considerationsduring the development of the NSL for eachFY include:

a. importance of the information to thedecisionmaker,

b. date of the resource-managementdecision for which the study is designed,

c. generic applicability of results ortechniques from the study,

d. status of the information, and

e. applicability of the study to issues ofregional or programmatic concern.

Following the approval of the NSL by theAssociate Director of the OMM, each Regional

Figure 7. SWSS Cetacean Study

12

office then provides a schedule for procurementof each of the approved studies.

Procurement and Review Processes. Individualstudies on the NSL are awarded through acompetitive procurement process, cooperativeagreements with State institutions or univer-sities, or through inter-agency agreements withother Federal Agencies. The MMS does notmaintain its own research laboratories, vessels,or facilities. Virtually all studies conductedunder ESP funding are awarded to externalgroups. Though less frequent, the MMS hassupported unsolicited proposals that are foundto complement previously identified needs,particularly in instances where there is a cost-leveraging opportunity.

Proposals are reviewed by the MMS scientistsand, more frequently, by other Federal andnongovernmental scientists. Depending on theproject, the progress and quality of ongoingresearch are monitored by Quality ReviewBoards composed of discipline experts notdirectly involved in the ongoing effort. Whilefinal reports are submitted to the MMS,researchers are encouraged to publish in peer-reviewed literature and are supported in thisendeavor. Additional review is provided earlyin the process through the OCS ScientificCommittee.

This Committee is specifically charted underthe FACA to provide advice to the Secretary ofthe Interior through the Director of MMS on thefeasibility, appropriateness, and scientific valueof the ESP. Programmatic reviews of the ESPhave been conducted by the National Academyof Sciences/National Research Council. Mostrecently, as part of the President’s ManagementAgenda, the ESP was reviewed by the Office ofManagement and Budget (OMB). The reviewconcentrated on program purpose and design,

strategic planning, program management, andresults.

Effect and Application of Socioeconomic andEnvironmental Studies. The results of theseefforts are used by the DOI in making decisionson the development of marine mineralresources. The data are useful in selectingleasing areas, analyzing environmental effects,and formulating leasing and operating rulesand regulations. Environmental studies alsoare designed to monitor the effects of petroleumexploration and development and productionactivities. If potential adverse effects arediscovered by these monitoring efforts,appropriate measures may be taken to mitigateor change the expected effects by amendingand modifying OCS regulations or by issuingNotice to Lessees and Operators (NTL). Inaddition, when an environmental study indi-cates a need to further protect the environment,new or changed stipulations may be imposedon future leases in a specific geographical area.

Collection of Geophysical andGeological Data

As previously discussed, one way of knowingwhether an area contains hydrocarbons is todrill one or more wells. However, state-of-the-art geophysical acquisition and processingtechniques and geological expertise have beendeveloped and refined over the years to assistin the prediction of whether there may behydrocarbons in the subsurface. With thesetechniques, attempts are made to predict: (1)whether the requisite geological conditions forhydrocarbon occurrence exist, (2) whetherreservoir quality rocks are probable, (3) wherethe reservoirs are located, and (4) the size ofthe reservoirs and the probable volumes ofpetroleum that they may contain.

13


Most of the information used by the MMSand industry to estimate or predict the oil andnatural gas potential of an unexplored area isfrom geophysical surveys and, to a lesser extent,geological surveys. A considerable amount ofthis information is collected under MMSpermits by oil companies or by specialized datacollection firms that sell the information to oilcompanies. Under lease and permit terms theacquiring entity is required to submit the datato the MMS, if requested.

Industry uses these geophysical and geologicaldata to determine which blocks have potentialfor economic accumulation of oil and naturalgas. These blocks then may be bid upon in thescheduled area-wide lease sales. The MMSuses the data to make informed regulatorydecisions regarding fair-market determinations,resource potential, and for post-sale manage-ment. It also acquires data that have beencollected for scientific research activities forwhich an approved permit or filing notice isrequired.

Geophysical Surveys Method (1). The primarygeophysical survey method used in oil andnatural gas exploration on the OCS is seismicreflection. Seismic reflection is the measure-ment of the two-way travel time of seismicwaves from the ocean’s surface to various rockformations within the earth (see figure 8).Information is collected about the thicknessand depth of various formations or strata ofrock and the probable existence and locationof structural features, such as reefs, salt domes,folds and faults, and stratigraphic traps. Othergeophysical surveys include measurements ofthe earth’s gravitational, magnetic, and electricfields.

Information about shallow layers identifiespotentially hazardous conditions, such as

surface faulting, potential slope failure areas,shallow water flows, or shallow gas accumula-tions. Information about the deeper layers isused primarily for evaluating the hydrocarbonresource potential. Both types of informationare necessary to make decisions on the explora-tion, development, and production scenarios ofthe blocks acquired.

Geological Surveys Method (2). Geologicalsurveying on the OCS consists of bottom sam-pling, shallow coring, and deep stratigraphictesting. These data are useful in determiningthe general geology of an area and whether thenecessary types of rocks exist for petroleumformation and accumulation. Recently, suchsurveys have been used to determine theviability of gas hydrates as a potential resource.

In totally unexplored areas, prior to a lease sale,deep stratigraphic test (DST) wells, commonlyknown as continental offshore stratigraphic test(COST) wells, may be drilled, usually by aconsortium of companies, to obtain informationon the subsurface geology of an area wheregeophysical data or other evidence indicatesthat hydrocarbons may exist. These test wellsmay be more than 20,000 feet deep. Theirdepths and location are controlled by permitsissued by the MMS.

Figure 8. Seismic Boat

14

When the geophysical data from seismicsurveys and stratigraphic evidence from thedrilling of wells are combined, the possiblepresence and volume of petroleum can beestimated. However, exploratory drilling isstill required to determine whether or not oilis actually present.

A geological report is prepared by the MMS foreach proposed lease sale area and generallyincludes the following: general geology of theplanning area, hydrocarbon potential, environ-mental geology, and potential geologic hazards.Parts of this report are included in theEnvironmental Assessment (EA) documentprepared for the proposed lease sale.

Area of Hydrocarbon Potential

The phrase area of hydrocarbon potential isdefined as an area that has the primary geologiccharacteristics favorable for the generation andaccumulation of hydrocarbons. The estimatedvolume of hydrocarbon potential within a givenplanning area is published in the Assessmentof Conventionally Recoverable HydrocarbonResources of the Outer Continental Shelf,which is one of the decisionmaking criteriafor the 5-year Final Outer Continental ShelfOil and Gas Leasing Program document.An estimate of the resources to be explored,developed, and produced from each lease saleis generated for the lease sale or multi-sale EIS.The criteria used in making a hydrocarbonpotential determination are the basin explora-tory and production history, sediment thickness,existence of source and reservoir rock, thermalhistory, and the existence of hydrocarbontrapping mechanisms.

15

Leasing Procedures for the OCSCall for Information andNominations/Notice of Intent toPrepare an Environmental ImpactStatement

After adoption of a 5-year leasing program,the usual first step in the sale process for anindividual area is to publish simultaneouslyin the Federal Register a Call for Informationand Nominations (Call) and a Notice of Intent(NOI) to Prepare an EIS. Comments areusually due 45 days after the Call and NOIare published. The entire process from theCall/NOI to the sale may take two or moreyears.

Some proposed sale areas may include anadditional first step—a request to industry tosolicit comments and interest in the specificarea. All subsequent steps in the leasingprocess are shown in figure 9.

The Call serves several functions. (1) Itinforms the public of the area under consid-eration for oil and natural gas leasing. (2) Itsolicits comments from all interested partieson areas or subjects that should receive specialattention and analysis. (3) It invites potentialbidders to indicate areas and levels of interest.(4) It invites public input regarding possibleadvantages and disadvantages of potential oiland natural gas leasing, exploration, anddevelopment to the region and the Nation.

This initial information-gathering step isimportant for ensuring that all interests andconcerns are communicated to the DOI forconsideration in the decision-making process.Yet, this is not the only public information-gathering step within the lease sale process.

All affected parties are asked for their viewsand comments at each major decision point inthe lease sale process.

Chapter Four

16

Figure 9. OCS Leasing Procedure

OCS Leasing Procedure

Area Identification

Draft EIS

Public Hearing

Issuance of Leases

Sale

Final Notice of Sale

Governor’s Comments

Proposed Notice of Sale

Final EIS

Call for Information andNominations/and Noticeof Intent to Prepare an EIS.

The MMS uses the information submitted inresponse to the Call for several purposes.Expressions of industry interest are used tofurther define the areas of potential for oil andnatural gas development. Comments onpossible environmental effects and multiple-useconflicts are used to analyze environmentalconditions in and near the Call area. Commentsalso are used to understand and considerpotential conflicts between offshore oil andnatural gas activities and the States’ interests,and to develop lease terms and conditions toensure safe offshore operations and to mitigateoffshore and onshore impacts.

The NOI officially announces the start ofpublic participation, called scoping by NEPA,and invites public participation in determiningthe significant issues, mitigating measures, andalternatives to the proposed action to beanalyzed in the EIS. The scoping process ispublic and involves all interests—Federal,State, local and tribal governments; Natives;commercial interests; environmental groups;and the general public. Typically, scopingmeetings are scheduled early in the preleaseprocess in communities that may be affectedby activity resulting from the lease sale.Government to government consultationamong MMS and tribal government entitiesoccurs throughout the leasing process.

At the time information is solicited for leasingan OCS area within 3 miles/leagues of theseaward boundary of any coastal State (the Call/NOI), the Secretary of the Interior alsoprovides, upon request of the Governor of thatState, geographical, geological, and ecologicalinformation relevant to those areas. Afterdetermining which areas will be furtherconsidered for leasing, the DOI consults withthe Governor(s) of the affected State(s) todetermine those areas (if any) that may contain

potential oil and natural gas pools or fieldsunderlying the OCS lands and lands subject tothe jurisdiction of the State(s).

The approach begins by issuing a typical Call.If no industry interest is expressed, the preleaseprocess is stopped and the sale deferred for oneyear. The Call is reissued the next year, and soon throughout the 5-year program. If at somepoint there is interest, and blocks are nominatedby industry and deemed appropriate for leasingby the MMS, the prelease process proceedsidentically to that subsequently described in thisreport, with the exception of the preparation ofan EA versus an EIS. The total number of salesoccurring through this process may be limited.This process allows the Secretary to take advan-tage of changes in technology, new information,market conditions, new exploration strategies,or other factors influencing industry interest inhigh cost frontier areas of the OCS in Alaska.

Area Identification

After the comment period for the Call closes,the MMS develops, evaluates, and recommendsoptions for continued environmental analysisand consideration for leasing. This process stepis known as Area Identification. It determinesthe geographical area of the proposed action tobe analyzed in an ensuing environmentalanalysis document, such as an EIS, any alterna-tives to the proposed action, and mitigativemeasures and other issues to be analyzed andconsidered further.

In general, all blocks that may have hydrocar-bon potential or otherwise may be of interest toindustry are included in the area identification,if they can meet an initial balancing testbetween energy values and potential environ-mental harm or conflict with other uses of theseabed. The intent is to consider environmental

17

concerns and to allow industry wide latitudefor making its investment decisions and testingvarious exploration strategies. Thus, the DOIattempts in the area identification step todevelop proposals that include as much acreagewith leasing and hydrocarbon potential aspractical, given the mandates of the OCSLA asamended. At the same time, the DOI strives toresolve as many issues as possible at this stepto prevent unnecessary conflicts throughoutthe remainder of the presale process. Earlyresolutions serve to reduce the level of publiccontroversy and help industry and the FederalGovernment (and ultimately the taxpayer)focus on promising acreage and avoid needlessexpense.

In identifying the area to be studied in the EIS,consideration is given to the level of industryinterest; comments of States, Federal Agencies,local and tribal governments, environmentalgroups, and other interested parties; geologicand geophysical information; historic bidding,exploration, and drilling data for the area;environmental conditions and effects ofdevelopment; and other economic and socialconsiderations. At this stage, areas may bedeleted from further study where both signifi-cant multiple-use conflicts may exist and thepotential for hydrocarbon discovery is low.

Public notice of the area identified is usuallymade through a press release and a fact sheetthat includes a map of the proposed sale area.

Draft Environmental ImpactStatement

The NEPA requires the preparation of an EISbefore the conduct of any major Federal actionthat could significantly affect the quality of thehuman environment and specifies the basicinformation that the EIS shall include. The

NEPA also established the Council onEnvironmental Quality (CEQ) as the Agencyresponsible for ensuring that other FederalAgencies comply with NEPA. The MMScompliance with the NEPA and CEQ require-ments relative to planned oil and natural gaslease sales begins with the preparation of aDraft EIS.

Regulations issued by the CEQ in 1978 andrevised in 1980 established uniform guidelinesfor implementing the procedural provisions ofNEPA. The CEQ regulations include scoping,which ensures maximum consideration of theenvironmental issues and of the opinions oflocal citizens and others about these issues.They also focus the analysis in the EIS onsignificant issues and alternatives and eliminateissues that are not significant.

Additionally, information gathered through thescoping process includes that received fromagencies in response to the requests for data inthe previously discussed Call. This informationis reviewed by a multidisciplinary team of staffanalysts to identify major issues and alternativesto be addressed in the EIS, as well as datagathered by the ESP.

The EIS includes a description of the leasesale proposal, including the oil and natural gasresources-estimated to be found and a projec-tion of the exploration and development activitythat might occur; reasonable alternatives to theleasing proposal; a description of the existingenvironment; a detailed analysis of possibleeffects on the environment, including socioeco-nomic and cumulative effects; a description ofthe assumptions upon which the analysis isbased; potential mitigating measures; anyunavoidable adverse environmental effects;the relationship between short-term uses andlong-term productivity; any irreversible or

Chapter Four continued

18

irretrievable commitment of resources; andthe records of consultation and coordinationwith others in preparation of the document.

The analysis of possible effects on theenvironment includes an analysis of the risksof potential oil spills as estimated by the useof an oil spill risk analysis model. The modelprovides a measure of the likelihood of an oil

spill, as well as the likely trajectories of a spillin relation to recreational and biologicalresources.

The EIS may also describe the technologyassumed or deemed necessary for exploration,development, and production of the proposedlease sale area. Figure 10 below illustrates thecontent of the EIS.

19

Figure 10. EIS Content


Pertinent published and unpublished investi-gations from academic and other institutionsand organizations and from other Federal andState agencies, including local knowledge, arereviewed during the preparation of the draftEIS. When the draft EIS is complete, it is filedwith the U.S. Enivonmental Protection Agency(EPA) and made available to the public forreview. A Notice of Availability is published inthe Federal Register. The period for commenton the draft EIS is usually 60 days from the dayit appears in the Federal Register.

Public Hearing

No sooner than 30 days after publication ofthe draft EIS, but within the 60-day commentperiod, one or more public hearings are heldin the vicinity of the proposed lease sale areafor the purpose of receiving comments on thedraft EIS. At least 30 days before the publichearings, the time and location of the hearingsare announced in the Federal Register. So itmay receive a broad array of input, the DOIinvites written or personal testimony fromenvironmental organizations; the academiccommunity; Federal, State and local govern-ment representatives; Native tribes; industry;and the general public. Oral and writtentestimony is then considered in the preparationof the final EIS.

Final Environmental ImpactStatement

The comments and data received through thepublic hearings and the official review processare analyzed along with any newly acquiredinformation and, when appropriate, areincorporated into the final EIS. At this stage,new stipulations or other measures to protectareas, or biological or other types of resources,including subsistence uses may be included

after comments from affected States and Nativetribes are reviewed. In some cases, newdeferral options are developed and incorpor-ated into the final EIS. Usually about 3 to 5months after the public hearing, the final EISis filed with EPA, and made available to thepublic. The Notice of Availability is thenpublished in the Federal Register.

Post-EIS EnvironmentalAssessment

When there are multiple sales within the sameplanning area in an approved 5-year program,as usually occur in the Central and WesternGOM, the Beaufort Sea, and Cook Inlet, certainprelease processes may be streamlined to avoidredundant and duplicative planning analyses.

In the case of the Central and Western GOMsales, one multisale EIS is prepared coveringall sales within those planning areas in theapproved 5-year program. In cases where themultisale EIS is completed over a year beforethe planned date of a sale covered by that EIS,an EA may be needed about 5 or 6 months priorto the planned sale date to determine if any newsignificant environmental impacts beyond thosedescribed in the multisale EIS are reasonablyexpected.

This redetermination is needed because of thedynamic nature of environmental informationand offshore oil and natural gas activities overtime. If the EA finding is that there are no newsignificant impacts, then the lease sale processmay proceed without further environmentalanalysis to the next step in the process, which isthe Proposed Notice of Sale (PNOS). If the EAfinding is that there are new significant impacts,then additional environmental analysis may beneeded, possibly even a new EIS, before thelease sale process may continue to the next step.

20

A similar multisale EIS approach has beenused in the case of Beaufort Sea and Cook Inletsales in the Alaska OCS. However, for salesafter the initial sale, a Request for Interest andComments is issued, and based upon theresponse, an Area Identification decision ismade. If the Area Identification decision is toproceed with the subsequent sale, then a post-EIS/EA process similar to that just describedfor the Central and Western GOM OCS areasis conducted.

Coastal Zone ManagementConsistency Determination

Concurrent with the preparation of the finalEIS, as well as the post-EIS EA if applicable,a CZMA consistency review and subsequentConsistency Determination (CD) is completedby the MMS relative to each affected State’sfederally approved coastal zone managementplan. Each CD includes a review of the State’sprogram, analyzes the potential impacts of theproposed lease sale in relation to programrequirements, and makes an assessment ofconsistency with the enforceable policies ofeach State’s program and the local district plan.

If a State disagrees with MMS’s CD, the Stateis required to do the following under theCZMA: (1) Indicate how the MMS presaleproposal is inconsistent with their coastalprogram; and either (2) Suggest alternativemeasures to bring the MMS proposal intoconsistency with their coastal program; or(3) Describe the need for additional informa-tion that would allow a determination ofconsistency. There is no procedure foradministrative appeal to the U.S. Secretaryof Commerce for Federal agency CD’s forpresale activities. When applicable, the MMSand the State typically work cooperatively to

resolve differences. Either the MMS or theState may also request mediation. Mediationis voluntary and the U.S. Department ofCommerce (DOC) would serve as the mediator.

Whether there is mediation or not, the finalCD is made by the DOI and that is the finaladministrative action for the presale CZMAconsistency process.

Proposed Notice of Sale

The PNOS is the public announcement of aproposed sale and is issued upon the decisionto proceed with the sale by the DOI AssistantSecretary for Land and Minerals Management(ASLM). Generally, it is issued after (1) thefinal EIS is filed with EPA; (2) the completionof the post-EIS Environmental Assessment, ifapplicable; (3) the preparation of the CoastalZone Management (CZM) ConsistencyDetermination; and, (4) preparation of variousin-house analyses of proposed lease saleeconomic terms and conditions. Variousamounts of information from these completeddocuments and analyses are combined by wayof a Secretarial decision memorandum thatsummarizes all proposed lease sale issues thatmay relate to State, local government, and/ornative tribe recommendations; environmentalconcerns; coastal zone consistency conflicts;economic benefits/costs; operational or legalconstraints; multiple-use conflicts; or any othersubject of concern. This memorandum alsoevaluates any prelease mitigation measures thatare available or appropriate to resolve conflicts,issues, and concerns.

On the basis of this memorandum and allsupporting materials, decisions are made onthe proposed terms and conditions of the sale.An attempt is made to balance the various

21


economic, social, and environmental issues andquestions raised by the sale and any concernsraised by the affected States, local governments,native tribes, other Federal Agencies, and thegeneral public.

The PNOS, usually available for public com-ment about one month after the final presaleNEPA documentation is completed, identifiesthe blocks deferred from leasing consideration,stipulations, and other restrictions that wouldmitigate the effects on the environment ofactivities conducted after the sale; proposedbidding systems and lease terms; and otherpertinent information useful to interestedparties and potential lessees. Any member ofthe public may submit comments in responseto a PNOS.

A Notice of Availability of the PNOS is pub-lished in the Federal Register about four tosix months prior to the proposed sale date. Itinforms the public where copies of the actualProposed Notice of Sale may be obtained.

A PNOS describes bidding systems to beused—typically a variable cash bonus subjectto a minimum bid requirement, with royalty onproduction fixed at rates of about 12.5 percentor 16.67 percent. The difference in percentagerates is usually linked to operational costvariables, such as water depth, e.g., the deeperthe water, the lower the rate to encourageexploration. Royalty suspension provisionsalso are used under very specific conditionsas an incentive to leasing, exploration, anddevelopment.

The DOI has tested different bidding systems,primarily in response to the OCSLA amend-ments of 1978 that required experimentation

with alternative bidding systems for a 5-yearperiod that terminated in September 1983. Inaddition to cash-bonus bidding with fixedroyalty rates as high as 33.5 percent, thefollowing systems were tested: cash-bonusbidding with fixed net profit share rates, cash-bonus bidding with fixed sliding-scale royaltyrates, and variable royalty rate bidding withfixed cash bonuses.

Besides describing the bidding systems, aPNOS also describes the length of initial periodfor blocks to be offered. The OCSLA providesfor issuing leases with an initial period of 5years, and up to 10 years when it is determinedthat longer periods are necessary to encourageexploration, because of unusually deep wateror other adverse conditions. Additionally, thePNOS specifies lease rental requirements thatapply before a lease timeframe.

The PNOS also serves as the basis for thenext step, consultation with the Governors ofaffected states. Such Governors are sent copiesof the PNOS, along with a letter explaining therationale for the decisions made in determiningthe conditions of the proposed sale. Once thePNOS is sent, each affected State Governor has60 days to submit comments on the size, timing,and location of the proposed lease sale. Thesecomments provide a frame-work for the discus-sion and resolution of any remaining concernsthe States may have on a particular sale.

Additionally, the Alaska Region is committedto discuss with and receive predecisioncomments from the North Slope Boroughfor Beaufort Sea sales and consult on aGovernment-to-Government basis with nativetribes that may be affected by the proposedaction.

22

Final Notice of Sale

After the end of the period for comments onthe PNOS by each affected State governor, afinal decision memorandum that analyzes allproposed lease sale issues is prepared for theSecretary. For affected States, the Governors’recommendations on the size, timing, andlocations of a proposed lease sale must beaccepted if the Secretary determines that theyprovide a reasonable balance between thenational interest and the well-being of anaffected State. The rationale for the determina-tion to accept or not accept recommendationsmust be communicated to the Governors inwriting. Additional special considerations andconsultations regarding North Slope Boroughand native tribes may be applicable for Alaskalease sales.

If the Secretary decides to proceed with thelease sale after consideration of the Governors’comments and any other new pertinent infor-mation, the Secretary issues a Final Notice ofSale (FNOS). The FNOS includes the date,time, and place of the sale; tracts availablefor lease; stipulations and other mitigatingmeasures; bidding systems and lease terms;and other pertinent information. In addition,a notice of leasing systems is issued that morefully describes the proposed bidding systemsfor the sale. Both notices are published in theFederal Register at least 30 days before thesale date.

Sale

No less than 30 days after the FNOS ispublished in the Federal Register, sealed bidssubmitted by qualified bidders are publiclyopened and read. Lease sales are open to thepublic and are conducted by the appropriate

Regional Director, usually in the city in whichthe OCS regional office is located. Qualifiedbidders may submit bids on each availabletract listed in the FNOS. Each bid submittedrequires an upfront payment deposit equal toone-fifth of the cash bonus bid amount.Payment of the one-fifth bonus bid amountmust be by electronic funds transfer (EFT).In almost all cases, only high bidders need tosubmit the one-fifth bonus payments. Thebids are checked for technical and legaladequacy on the day of the public reading todetermine the highest valid bid. They are alsoimmediately adjudicated to determine if thebidder has complied with all applicableregulations.

The Federal Government reserves the right toreject any or all bids and the right to withdrawany block from the sale.

Decision to Accept or Reject Bids

Immediately after the bids are read publicly,the MMS begins the process of determiningwhether a bid can be accepted and a leaseissued. Each high bid is first examined fortechnical and legal adequacy, as previouslynoted. Before any bid is accepted, the biddingresults of the sale also are reviewed by theAttorney General and the Federal TradeCommission to determine if awarding a leasewould create a situation inconsistent with theantitrust laws. Each valid high bid resultingfrom these determinations is then analyzedfrom a fair market value perspective.

Generally, the fair market value analysis pro-cedures use a two-phased system of high bidevaluation to assess adequacy of bids. Phase 1includes evaluation criteria for accepting highbids on some tracts and determining what other

23

bids will receive further evaluation in Phase 2.In Phase 1, the MMS partitions the tractsreceiving bids into three general categories:(1) Those tracts with three or more bids onwhich competitive market forces can be usedto ensure fair market value; (2) Those tractsthat are identified as being nonviable on thebasis of adequate data and maps; and (3) Thosetracts that are identified as viable and on whichMMS has the most detailed and reliable data. Avariety of rules and procedures based on theseclassifications of tracts are used to determine ifa high bid is acceptable in Phase 1 or needs tobe passed to Phase 2 for further evaluation.Phase 1 procedures are generally completedwithin three weeks of the bid opening.

The high bids not accepted in Phase 1 receivefurther evaluation in Phase 2. Phase 2 activitiesto assess bids are undertaken by analyzing,partitioning, and evaluating tracts in two steps.(1) Further mapping and/or analysis is per-formed to review, modify, and finalize viabilitydeterminations and tract classifications. (2)Tracts identified as being viable must undergoan evaluation to determine if fair market valuehas been received. For those high bids onblocks with potentially viable prospects, theMMS geologists, geophysicists, economists,and petroleum engineers prepare detailedPhase 2 estimates of the economic value ofthe oil and natural gas resources on each tract.The high bids are then compared to these MMSPhase 2 estimates of resource economic values.Additionally, the MMS may factor the numberand value of other lower bids from the samesale and on the same tract in its evaluation ofthe high bid. Most analyses are undertaken onthe basis of data available at the time of thesale; however, additional geophysical andgeological data may be obtained after the saleat the discretion of the MMS.

The bid adequacy recommendations developedin Phase 2 are usually completed over a periodranging between 21 and 90 days after the sale.Valid high bids are deemed acceptable as theanalysis of bids is completed over this period.

The total evaluation period can be extended,if needed, at the MMS’s discretion. Any bidnot accepted within the prescribed time isconsidered rejected.

Upon completion of the Phase 2 evaluationprocess, the unsuccessful high bidders arenotified and the one-fifth bonus bid depositfor each rejected bid tract is returned.Unsuccessful high bidders may appeal a bidrejection decision in the manner described inthe MMS regulations.

Issuance of a Lease

When a high bid is deemed acceptable by theMMS, the submitter is immediately notifiedof the decision and is provided a set of officiallease forms for execution. Additionally, thesuccessful bidder must pay within a prescribedtime the remaining four-fifths of the bonus bidand the total amount of the first year’s annualrental. Upon receipt of the required paymentsand properly executed lease forms, the MMSissues a lease to the successful bidder. Leasesusually are effective the first day of the monthfollowing the date they are signed by theappropriate MMS official.

The oil and natural gas mineral lease grantsthe right to explore, develop, and produce oiland/or natural gas for a specific period andfrom a specific tract of OCS land. The tractcovers an area not exceeding 5,760 acres or2,304 hectares, unless it has been determinedthat a larger area is necessary to comprise a


24

reasonable economic production unit. If adiscovery is made within the initial period ofthe lease, the lease is extended for as long asoil and/or natural gas is produced in payingquantities or approved drilling operations areconducted.

The term of the lease may also be extended ifa suspension of production or suspension ofoperations has been granted or directed.

Under the lease, the Federal Governmentreserves the right to:

• grant leases for other minerals;

• issue permits for geological andgeophysical exploration;

• approve pipelines and other rights-of-way;

• take its royalty on oil and natural gasproduction in value or in kind (royalty-in-kind (RIK))

• extract helium from produced gas;

• suspend operations and production;

• acquire operation under a unit, pooling,or drilling agreement; and

• cancel the lease.

The lease further spells out requirements forsurety bonds, royalty payments, rental pay-ments, and assignment or other transfers of thelease or any partial interest. Assignments ofthe whole or partial interest in a lease from oneleaseholder to another require the approval ofthe appropriate Regional Director. Before theapproval of the lease assignment, the MMS

consults with and gives due consideration tothe views of the Attorney General with regardto antitrust situations.

In addition, the lease requires that the lesseecomply with additional rules and regulationsthat may be issued after the lease is awardedto provide for the prevention of waste and theconservation of the natural resources of theOCS. For example, the DOI may requirecertain safety equipment that previously hadnot been required.

25

Statutory and Regulatory AuthorityThe authority for the leasing of OCS oil andnatural gas originates from the authority vestedin Congress by the Constitution to managepublic property. Congress has delegated itsauthority through specific legislation. Adescription of that authority follows.

Laws

Jurisdiction over the continental shelf is dividedbetween the coastal States and the FederalGovernment. The States manage the mineralresources off their immediate coasts. The MMSmanages the mineral resources in the area underFederal jurisdiction, an area commonly referredto as the OCS.

The formal division of responsibility evolvedgradually. As interest in offshore resourcesbegan to grow, questions regarding the divisionof jurisdiction between coastal States and theFederal Government had to be resolved. In1947 and 1950, the U.S. Supreme Court up-held the position of the Secretary of the Interior,that the Federal Government, not the States,possessed full power over the lands and naturalresources in the submerged land areas seawardof the coasts of the United States.

In response to public concerns about the owner-ship and development of offshore resources,in 1953, Congress enacted two laws—theSubmerged Lands Act and the OCSLA. Theselaws granted certain offshore lands to coastalStates. They also provided a framework forregulating and managing the exploration,development, and production of oil, naturalgas, and other minerals of the seabed beyondthe area managed by coastal States. The twoacts are described as follows:

The Submerged Lands Act. The SubmergedLands Act of May 22, 1953, granted the coastalStates jurisdiction over a belt of submergedlands seaward of their coastlines to a distanceof generally three geographical miles. A greaterdistance from shore, about nine geographicalmiles or three marine leagues, was granted toTexas and Florida’s west coast only becausethese States had established their jurisdictionover the larger area before achieving statehood.The Submerged Lands Act reaffirmed thatnatural resources of the seabed and subsoilbeyond those granted to coastal States wouldbe subject to the jurisdiction of the FederalGovernment for the benefit of the entire Nation.

The Outer Continental Shelf Lands Act and itsAmendments. The OCSLA of August 7, 1953,authorized the Secretary of the Interior to grantmineral leases and to prescribe regulationsgoverning oil and natural gas activities on OCSlands. The OCSLA defines the OCS as “…allsubmerged lands lying seaward and outside ofthe area of lands beneath navigable waters asdefined in Section 2 of Submerged Lands Actand of which the subsoil and seabed appertainto the United States and are subject to itsjurisdiction and control.” The pertinentprovision of the Submerged Lands Act defines“navigable waters” as “… all lands permanentlyor periodically covered by tidal waters up tobut not above the line of mean high tide andseaward to a line three geographical milesdistant from the coast line of each such Stateand to the boundary line of each such Statewhere in any case such boundary as it existedat the time such State became a member of theUnion, or as heretofore approved by Congress,extends seaward (or into the Gulf of Mexico)beyond three geographical miles….”

Chapter Five

26

The OCSLA established the importance ofdeveloping the mineral resources of the con-tinental shelf in an expeditious and orderlymanner. The OCSLA also recognized theneed for safely conducting oil and natural gasoperations and using technology and proceduresintended to minimize the likelihood of blow-outs, fires, spills and interference with otheruses of the offshore waters.

The OCSLA was amended on September 18,1978 to:

a. establish policies and procedures thatexpedite exploration and developmenton the OCS to achieve national economicand energy goals, ensure national security,reduce dependence on foreign sources, andmaintain a favorable balance of paymentsin world trade;

b. balance orderly energy resource develop-ment with protection of the human, marine,and coastal environments;

c. ensure the public a fair and equitable returnon the resources of the OCS;

d. encourage development of new andimproved technology to eliminate orminimize risk of damage to the human,marine, and coastal environments;

e. ensure that affected States and localgovernments have timely access toinformation regarding OCS activities andopportunities to review, comment, andparticipate in policy and planning decisions;

f. establish an oil spill liability fund; and

g. establish a fishermen’s contingency fund.

The OCSLA was amended again in 1986 by theOCSLA Amendments of 1985 to provide for thefollowing:

a. The distribution of a portion of the receiptsfrom the leasing of mineral resources of theOCS to coastal States. As provided underSection 8(g) of the OCSLA, twenty-sevenpercent of the receipts from the area withina 3-mile zone adjacent to State lands is tobe distributed to affected coastal States.The funds may be used for the mitigationof adverse economic and environmentaleffects related to the development of suchresources.

b. A schedule for the distribution of funds inthe Section 8(g) account to affected coastalStates of revenues received as a result ofleasing activity from September 1978through October 1, 1985; and a formulafor the distribution of additional paymentsto be made for leasing activity occurringafter October 1, 1985.

The 1985 Amendments also amended theSubmerged Lands Act by adding languageaddressing the immobilization of boundariesbetween a State and the United States whenthe coordinates of the boundaries are fixedunder a final decree of the Supreme Court.

Other Laws That Govern the OCS. The leasingand operations activities on the OCS are alsosubject to the requirements of some 30 otherFederal laws administered by numerous Federaldepartments and agencies. Among them are thefollowing.

• National Environmental Policy Act—establishes requirements for preparingenvironmental assessments and EIS’s for

27

major Federal actions that couldsignificantly affect the quality of thehuman environment.

• Endangered Species Act—requires thatFederal Agencies ensure that their actionsare not likely to jeopardize the continuedexistence of any threatened or endangeredspecies.

• Coastal Zone Management Act—providesfor State review of exploration plans anddevelopment, and production plans thataffect the land and water use of thecoastal zone. The Act requires consis-tency of relevant activities in those planswith approved State coastal managementprograms.

• Federal Water Pollution Control Act—(commonly known as the Clean WaterAct) requires that in-water discharges ofpollutants generated by OCS operationscomply with the limitations and restric-tions that are included in an applicableNational Pollutant Discharge EliminationSystem (NPDES) permit.

• Ports and Waterways Safety Act—protects navigational safety.

• Marine Mammal Protection Act—provides for protection of marinemammals.

• Clean Air Act—establishes nationalambient air quality standards.

• National Historic Preservation Act—provides for the protection of historicand prehistoric archaeological resources.

Regulations

Exploration Plans. An Exploration Plan (EP)and its supporting information must besubmitted for approval to the MMS beforean operator may begin exploratory drillingon a lease. The EP describes all explorationactivities planned by the operator for a specificlease(s), the timing of these activities,information concerning drilling vessels, thelocation of each well, and other relevantinformation. An approved plan must berevised for changes such as surface location,type of drilling unit, or location of the onshoresupport base.

A supplemental plan is a revision to anapproved plan that proposes the addition ofan activity that requires a permit. An amendedplan is any revision to a plan pending approval.Each of these types of plans need contain onlyinformation related to or affected by theproposed changes.

The supporting information provides ananalysis of both offshore and onshore impactsthat may occur as a result of implementationof the plan. In accordance with the CZMA,EP’s requiring State review must contain acertification of consistency with approved CZMprograms of States that could be affected by theexploration activities. States with approvedprograms may take up to 6 months forconsistency reviews but must agree with orrequest an extension within 3 months afterreceipt of the EP.

Chapter Five continued

28

The MMS prepares a Categorical ExclusionReview (CER), EA, or EIS based on availableinformation, which may include the geophys-ical report for determining the potential for thepresence of deepwater benthic communities,archaeological report, air emissions data, live-bottom survey/report, biological monitoringplan, and recommendations by the affectedState(s), the U.S. Department of Defense(DOD), Fish and Wildlife Service (FWS) forselected plans under provisions of a DOIagreement, National Marine Fisheries Service(NMFS), and/or internal MMS offices. TheMMS evaluates the proposed activity forpotential impacts relative to geohazards andmanmade hazards including existing pipelines,archaeological resources, endangered species,sensitive biological features, water and airquality, oil-spill response, and other uses (e.g.,military operations) of the OCS.

A CER is prepared for certain postleaseactivities in the GOM. The criteria used todetermine which actions are to be excludedfrom the NEPA process include: (1) Theaction or group of actions that would have nosignificant effect on the quality of the humanenvironment, and (2) the action or group ofactions that would not involve unresolvedconflicts concerning alternative uses ofavailable resources.

If the CER determines that the proposed actionis an exception to the categorical exclusions,then an EA is required. An EA may also beprepared on any action at any time to assist inplanning and decisionmaking or under extra-ordinary circumstances. An EA is routinelyprepared for selected environmentally sensitiveareas and for proposed activities consideredenvironmentally sensitive.

If the EA indicates that approval of the planwould constitute a major Federal action signifi-cantly affecting the human environment, and anexisting EIS is not current, an EIS must beprepared. The EA or EIS would also identifyappropriate mitigation for impacts of theproposal.

On the basis of the findings and the plan com-pleteness review, the EP would be approved ordisapproved, or modification of the plan wouldbe required of the operator.

Development and Production Plans. Adevelopment and production plan (DPP) andits supporting information must be submittedfor approval to the MMS before an operatormay begin development or production activities.The OCSLA requires that at least once in aplanning area (other than the Western andCentral GOM planning areas), upon receiptof a DPP, the MMS must evaluate theenvironmental impact of activities describedin a DPP and prepare a Developmental EISunder NEPA for the specific DPP submitted.The Developmental EIS must be submitted tothe Governor of the affected State(s) for CZMconsistency review. A DPP is not required forleases in the GOM. Western operators mustprepare and submit to the MMS a developmentoperations coordination document (DOCD) and,as required, supporting environmental informa-tion, an archaeological report, a biologicalreport monitoring and/or live-bottom survey, orother environmental data determined necessarybefore any development and production activityis conducted on a lease in the Western Gulf.

A DOCD will be considered a DPP for the pur-pose of any references in any law, regulation,lease provision, agreement, or other document

29


referring to the preparation or submission of aplan. The plan describes a schedule of develop-ment activities, platforms, or other facilitiesincluding environmental monitoring featuresand other relevant information. As with EP’s,the MMS can require modification of a plan onthe basis of inadequate or inaccurate supportinginformation.

After receiving a DOCD, the MMS prepares aCER, EA, and/or EIS as discussed. As part ofthe review process, the DOCD and supportingenvironmental information are sent to theaffected State(s) having an approved CZMplan for consistency certification review anddetermination. The OCSLA provides forcoordination and consultation with the affectedState and local governments concerning a DPP.

On the basis of the CER, EA, or EIS findingsand the plan completeness review, the DPPwould be approved or disapproved, or modifi-cation of the plan would be required of theoperator. After plan approval, the operatorsubmits for approval specific applications tothe MMS, such as those for pipelines and plat-forms, to conduct activities described in theplan.

Oil-Spill Contingency Plans. The lessees arerequired to submit an Oil-Spill ContingencyPlan (OSCP) to the MMS for approval whenor prior to submitting an EP, DPP or DOCD.The GOM operators may submit a regionalplan covering all of their Gulf operations.The approved regional OSCP is then referencedwhen EP’s, DPP’s or DOCD’s are submitted.Additionally, certain site-specific, oil-spill-response information is required to accompanya plan when a regional OSCP is referenced.

Regional and site-specific OSCP’s are requiredto be reviewed and updated annually, and allmodifications of an OSCP are submitted to theMMS for approval. The OSCP ensures that afull response capability exists and is availablefor commitment in the event of an oil spill.Such a commitment includes specification ofappropriate equipment and materials, theiravailability and deployment time, and provi-sions for varying degrees of response effort,depending on the severity of the spill.

The MMS currently requires a comprehensiveOSCP for lessees operating on the OCS. Theowners and operators of facilities in Statewaters with plans approved by the State arerequired to submit to the MMS a copy of theplan and information pertaining to the approval.

The Environmental Protection and ResponsePlan outlines the availability of spill contain-ment and cleanup equipment and trainedpersonnel. It must ensure that full responsecapability can be deployed during an oil-spillemergency. The plan includes specification forappropriate equipment and materials, theiravailability, and the time needed for deploy-ment. The plan must also include provisions forvarying degrees of response effort, dependingon the severity of a spill.

The Oil Pollution Act of 1990 requires thatspill-response plans identify and ensure theavailability of private personnel and equipmentnecessary to respond to a worst case discharge.For purposes of the MMS interim rule, theMMS is considering a continuous spill for afacility to be a worst case discharge. This isconsistent with the MMS requirements forOSCP’s at 30 CFR 254.

30

Hydrogen Sulfide Contingency Plans. TheMMS must make a determination regarding thepresence of hydrogen sulfide (H2S) gas. It alsoclassifies an area of proposed operations as (1)a zone known to contain H2S, (2) a zone wherethe presence of H2S is unknown, or (3) a zonewhere the absence of H2S has been confirmed.An H2S Contingency Plan must be submittedfor approval prior to conducting operations ona lease when the H2S classification meets thecriteria of (1) or (2), and must includecontingencies for simultaneous drilling, well-completion, well-workover, and productionoperations. Each EP, DPP or DOCD mustcontain a request for a determination of one ofthe three classifications and a discussion of thebasis for the recommendation. The lessee musttake all necessary and practicable precautionsto protect personnel from the toxic effects ofH2S and to mitigate the adverse effects of H2Sto property and the environment.

Environmental Information. Specificenvironmental information is required forCZM purposes. Under the CZMA, each Statethat has an approved CZM plan has the optionto require information different than thatspecifically outlined for inclusion in the plan.A State CZM agency is required to ensuretimely public notice of their receipt of eachOCS plan that has been submitted to them fortheir CZM consistency determination. Theoperating regulations recognize the possiblesignificance of proposed modifications toapproved plans and provide for CZM agencyreview of modifications.

Additional environmental information may alsobe required for plans/activities for: (1) areas ofhigh seismic risk or seismicity and relatively

untested deepwater and remote areas; (2) areasproposed or established as a marine sanctuaryand/or near the boundary of a proposed orestablished wildlife refuge or areas of highecological sensitivity; (3) areas of potentiallyhazardous natural bottom conditions; or (4) theuse of new or unusual technology, when theadditional information is required to evaluateimpacts.

Environmental information requirements willbe determined on a case-by-case basis for plansmeeting any of the four categories, with theexception of submitted plans that proposeactivities within certain restrictive zones.

The MMS authority to require lessees oroperators to conduct archaeological resourcesurveys and submit reports prior to exploration,development and production, or pipeline instal-lation is now outlined by regulation at 30 CFR250.194. This rulemaking also standardized thedefinition and use of the term “archaeologicalresources” within MMS’s regulatory program.

Air Emissions Information. The OCSLArequires that the Secretary of the Interiorpromulgate and administer regulations thatcomply with the National Ambient Air QualityStandards pursuant to the CAA and to the extentthat authorized activities significantly affect theair quality of any State. Under provisions of theCAA Amendments of 1990, the EPAAdministrator, in consultation with theSecretary of the Interior and the Commandantof the Coast Guard, will establish the require-ments to control air pollution in OCS areas ofthe Pacific, Atlantic, Arctic, and eastward of87o30’W. longitude in the GOM.

31


For the OCS sources located within 25 milesof the States’ seaward boundaries, the require-ments are the same as those that would beapplicable if the source were located in thecorresponding onshore area. For sourceslocated beyond the 25 miles of the States’boundaries, the sources are subject to Federalrequirements for Prevention of SignificantDeterioration promulgated pursuant to Part Cof Title 1 of the CAA.

The regulations also establish procedures toallow the EPA to exempt any OCS source froma control technology requirement, if it istechnically infeasible or poses unreasonablethreat to health or safety. The regulated pollu-tants include carbon monoxide, suspendedparticulates, sulphur dioxide, nitrogen oxides,total hydrocarbons, and volatile organiccompounds. Emissions data concerning newor modified onshore facilities that are directlyassociated with offshore activities, are requiredto enable each affected State to make a deter-mination of the effects on its air quality. Allnew or supplemental EP’s, DPP’s and DOCD’smust include air emissions informationsufficient to make an air quality determination.

Structure Removal. The lessees/operatorsmust submit an application for MMS approvalto remove a structure. In doing so they mustprovide information, including the following:complete identification of the structure; sizeof the structure (number and size of legs andpilings); removal technique to be employedand if explosives are to be used, the amountand type of explosive per charge; and thenumber and size of well conductors to beremoved and the removal technique. Structure-removal requests are reviewed on a case-by-case basis. At present, all structure removals

require an EA and, if explosives are used,require an Endangered Species Section 7Consultation with the NMFS. The NMFSissued a standard Biological Opinion on July25, 1988, which covers removal operations thatmeet specified criteria pertaining to the size ofexplosive charge used, detonation depth, andnumber of blasts per structure grouping. TheMMS, NMFS, and lessees are cooperating in anobserver/monitoring program to determine thepresence of marine mammals and/or sea turtlesin the vicinity of the structure removals.

The use of explosives to cut offshore oil andnatural gas structure legs/pilings for removalcould cause injury or death to protected marinemammals and endangered sea turtles. Althoughthe NMFS has the sole responsibility to enforceprotection of the majority of marine mammalsin the GOM, the MMS and the NMFS haveconferred extensively in the development ofplatform removal precautions and have em-ployed data resulting from equations found inConnor (1991).

Regarding “...uncertainties concerning thepossible effects of structure removals...,” theNMFS has instituted a comprehensive programto protect sea turtles and cetaceans. It alsosends observers to every structure removalwhere explosives are used. The cumulativeinformation gathered by observing theseremovals addresses the uncertainties aboutdirect mortalities or injuries to marinemammals resulting from these removals.

Since the NMFS protective observer programbegan in 1986, only one sea turtle is known tohave been harmed. Others have been removedfrom platforms slated for removal, prior todetonation. If cetaceans are observed in the

32

vicinity of a removal site, detonations arepostponed until the animals have vacated thearea. The NMFS is responsible for trainingobservers to their own required level ofexpertise and believes it would be redundantfor the MMS personnel to engage in theobserver program.

Coastal Zone Management Consistency Reviewand Appeals for Plans. States with an approvedCZM plan review certain OCS activities todetermine whether they will be conducted in amanner consistent with their approved plan.This review authority is applicable to activitiesdescribed in detail in any EP, DPP or DOCD ofany area that has been leased under the OCSLAand that affects any land or water use or naturalresource within the State’s coastal zone. TheMMS may not issue a permit for activitiesdescribed in a plan unless the State concurs oris conclusively presumed to have concurredthat the plan is consistent with its CZM plan.

The MMS sends copies of an EP, DPP, andDOCD, including the consistency certificationand other necessary information, to thedesignated State CZM agency by receiptedmail. If no State-agency objection is submittedby the end of the consistency review period, theMMS will presume consistency concurrence bythe State. Similar procedures are followed foramended plans.

If a written consistency concurrence is receivedfrom the State, the MMS may then approve anypermit for activities described in the plan. TheMMS can require modification of a plan if theoperator has agreed to certain requirementsrequested by the State.

In the event that a written consistency objectionis received from a State before the expirationof the review period, the MMS will not approveany permit for an activity described in the planunless (1) the operator amends the plan toaccommodate the objection and concurrenceis subsequently received or conclusivelypresumed; (2) upon appeal, the Secretary ofCommerce finds that the plan is consistent withthe objectives or purposes of the CZMA or isnecessary in the interest of national security; or(3) the original objection is declared invalid bythe courts.

Coastal Zone Consistency Appeals. A Statedetermination that a proposed activity is notconsistent with its approved program must bemade within 6 months, and a State must notifythe applicant. States often object on thegrounds of insufficient information or that theproposal is inconsistent with a mandatory Stateprogram requirement. State objections mustdescribe how the proposed activity will beinconsistent with specific elements of the man-agement program and alternative measures, ifthey exist, which, if adopted by the applicant,would permit the proposed activity to beconducted in a manner consistent with themanagement program.

Further, the State must inform the applicantof the right of appeal to the Secretary ofCommerce. Applicants have 30 days fromreceipt of the objection to file a notice of appealwith the Secretary. The applicant may appealon two independent grounds, that the activityfurthers the purposes or objectives of theCZMA or, that the activity is necessary in theinterest of national security.

33


The notice of appeal must be accompanied by astatement in support of the applicant’s position,along with supporting data and information.Copies of the notice and supporting materialmust be sent to relevant Federal and StateAgencies. An ex parte process from one side’sperspective applies in the appeals process tothe Secretary of Commerce. The merits of anappeal cannot be discussed unless all partiesare present. The Secretary may order a publichearing on his/her own volition or at the requestof an interested party. A Federal Registernotice is prepared to inform the public of thehearing.

Operating Regulations,Stipulations, Notices, andConditions of Approval

Operating Regulations. The regulations at30 CFR Part 250 cover all day-to-dayoperations including drilling, production,well-workovers, well-completions, structures,pipeline operations, bonding, unitization, anddecommissioning. The regulations are amixture of performance-based and prescriptiverequirements to ensure safety, protect theenvironment, and conserve natural resources.

Stipulations. Special stipulations are oftenincluded in the OCS oil and natural gas leasesin response to concerns raised by coastal States,fishing groups, Federal Agencies, Native tribes,and others. The stipulations may requirebiological surveys of sensitive seafloor habitats,environmental training for operations personnel,special waste-discharge procedures, archaeolog-ical resource reports to determine the potentialfor historic or prehistoric resources, specialoperating procedures near military bases ortheir zones of activity, and other restrictions onOCS oil and natural gas operations. Lease

stipulations are legally binding, contractualprovisions.

Notice to Lessees and Operators. The NTL’sare used to notify operators quickly within aparticular OCS Region or nationwideconcerning changes in administrative practicesor procedures for complying with rules, regula-tions, and lease stipulations and/or to clarifyrequirements or to convey information. TheNTL’s do not impose new requirements onlessees.

Conditions of Approval. Conditions of approvalare often attached to approval permits such asApplications for Permit to Drill (APD). Theseconditions range from administrative matters,such as the required frequency and number ofreports, to technical or environmental condi-tions, such as requirements for the disposal ofdrilling mud. In all cases, they are specificconditions that amplify or explain an existingrequirement in the regulations or leasestipulations.

Presidential Proclamation on theExclusive Economic Zone

On March 10, 1983, a Presidential Proclamationestablished an Exclusive Economic Zone (EEZ)of the United States. The EEZ extends seaward200 nautical miles from the baseline (the legalcoastline) of the territorial sea of the UnitedStates, the Commonwealths of Puerto Ricoand Northern Mariana Islands, and other U.S.overseas territories and possessions. The EEZextends over 3 billion acres subject to U.S.jurisdiction.

Within the EEZ, the United States has sovereignrights, to the extent permitted by internationallaw, to explore, exploit, conserve, and manage

34

natural resources, living and nonliving, of theseabed and subsoil. The Secretary of theInterior is authorized by the OCSLA to managethe leasing of oil and natural gas within the EEZcontiguous to the 50 States.

OCS Moratoria and Deferrals

Moratorium can be defined as the temporarycessation of an activity or a legal authorizationto delay an action or activity. Congress and thePresident have the authority to impose mora-toria. Minor withdrawals of onshore Federallands have occurred for more than 100 years.A more extensive withdrawal came with thecreation of Yellowstone National Park in1872. Modern day withdrawals are seen inthe creation of the wilderness system, scenichighways, and wildlife sanctuaries. Typically,withdrawals have created conflicts betweeninterest groups and the Federal Government.

Since the early 1980’s, Congress has adopteda series of restrictive measures that deny theoffshore energy industry sector access to muchof the potentially vast hydrocarbon resourcesof the OCS. In general, moratoria have beensought by coastal States and communitiesbecause of concerns about the impacts of oiland natural gas exploration and the OCS devel-opment off their coasts. State governmentshave pursued moratoria because they believedthese to be the most effective mechanism toconstrain OCS development within the currentleasing system.

The enactment of the first moratorium signaleda shift in the legislative branch’s involvementand attitude toward the OCS program from acomprehensive view to a more focused onethat centered on certain controversial leasesales. Coastal States developed a regionalismasmany in individual geographic areas came to

the conclusion that their coastlines are uniqueand should be protected from the risk of oilspills.

Congress generally enacts moratoria by prohibi-ting the expenditure of funds for various OCSactivities in the Interior Appropriations Bills orby authorizing legislation. These moratoria areusually based on single year funding limitations.Congress has enacted moratoria through pro-visions in the appropriations enactments forthe fiscal years 1982 through the present day.The specific areas covered by the moratoriahave varied from year to year: New England(FY 1984 through FY 1993), California(FY 1982 through FY 1985, FY 1989 throughFY 1993), Eastern Gulf (FY 1984, FY 1989through FY 1993), Mid-Atlantic (FY 1983,FY 1990 through FY 1993), South Atlantic(FY 1993), Alaska’s North Aleutian Basin(FY 1990 through FY 1993), and the PacificNorthwest (FY 1991 through FY 1993).Generally, however, the total acreage placedoff limits to leasing has increased every year,from 736,000 acres in four Northern Californiabasins in FY 1982, to 468.6 million acres offCalifornia, the Pacific Northwest, the AtlanticCoast, Florida’s Gulf Coast, and Alaska’s NorthAleutian Basin in FY 1993. In 2003, a Senateappropriations bill language deleted themoratorium on leasing in the North AleutianBasin. However, the Presidential moratoria forAlaska’s North Aleutian Basin remains.

In accordance with Section 12 of the OCSLA,the President may from time to time withdrawunleased lands of the OCS under a standingdirective. In June 1990, in response to anInteragency OCS Task Force, President Bushissued an Executive Order canceling leasesales and prohibiting future lease sales off theeast and west coasts for 10 years and untilnecessary scientific studies could be completed.

35

In June 1998, President Clinton withdrew fromleasing through June 30, 2012, those areas ofthe OCS under moratoria pursuant to Section108-11 of Public Law 105-83.

Leasing deferrals are more common and alteran area offered for a particular lease sale afterinterest groups have commented on the initialareas suggested by the MMS. Five-yeardeferrals for leasing appeared for the first timein the 1987 5-Year Plan. Deferrals havetraditionally been associated with militaryzones; buffer zones around areas of specialbiological significance, major fisheries, scenicor environmentally sensitive regions; and areasthat were technically unfeasible to develop.

Lease Buybacks

Starting in the 1980’s, environmental concernsprompted the establishment of leasing anddrilling moratoria that prohibited most OCSproduction. Currently, the only producing OCSareas are portions of the GOM, California, andAlaska. These moratoria inevitably led tolitigation over leasing and lease development.

The OCSLA authorizes the Secretary of theInterior to cancel a lease and compensate thelessee if the Secretary determines that (1)continued operation of the lease would causeserious damage to life; property; any mineral;national security or defense; or the marine,coastal, or human environment; (2) the threatof harm or damage will not disappear ordecrease within a reasonable length of time;and (3) the advantages of cancellation aregreater than the benefits of continuing the lease.

In the 1980’s, development of several leasesoffshore North Carolina, Alaska, and Floridawas halted in May 1992. The leaseholders

claimed the Government’s action constituted a“taking” of property rights of 149 leases thathad been subject to drilling moratoria andlocated off the southwestern coast of Florida(73 leases), offshore Alaska (23 leases in BristolBay-North Aleutian Basin) and North Carolina(53 leases).

In July 1995, the United States settled. Thesettlement also covered some companiesholding leases off North Carolina. For theremaining companies, holding leases off Alaskaand southwest Florida and those leases relin-quished in a 2000 Supreme Court ruling, theFederal Government was ordered to repay over$156 million in breach of the lease contracts.No leases exist on any of the litigated areas.

On July 24, 2000, Chevron U.S.A., Inc.,Conoco, Inc., and Murphy Exploration &Production Company filed a lawsuit againstthe United States for denying the companies“timely and fair review” of plans, permits, andan appeal concerned with their Destin Dome 56Unit. The proposed natural gas developmentproject was located in the northeastern GOMsome 25 miles south of Pensacola, Florida,and the lessees estimated potential natural gasreserves upwards of 2.6 trillion cubic feet. OnMay 29, 2002, Interior Secretary Gail Nortonannounced that the United States had agreed inprinciple to settle the litigation. The companieshad relinquished all but two leases by October2002 for $115 million.

The remaining leases are suspended until atleast 2012, under the terms of the agreement.The leesee agreed not to submit developmentplans before 2012, when the current moratoriawill expire. Furthermore, the leases can not bedeveloped unless approved by both the FederalGovernment and State of Florida.


36

RevenuesRevenues from the OCS leasing consist ofbonuses, royalties or profit shares, and rentals.A portion of the rentals are deposited in anoffset account that contributes to the fundingof the MMS activities. The bonuses, royaltiesor profit shares, and the remainder of the rentalsare deposited in the U.S. Treasury. Addition-ally, the OCS leases are subject to the Federalincome tax laws.

As described previously, each high bid submit-ted must include payment of one-fifth of thebonus bid by EFT directly to the U.S. Treasuryand by a deadline, usually a set time on the dayafter bid opening, as identified within the noticeof sale. In some cases, e.g., bidders who do notalready own the OCS leases or who have everdefaulted on a one-fifth bonus payment, bidsubmitters are required to financially guaranteethe one-fifth amount of all of their bids at thetime of bid submission.

Within 11 working days of the successfulbidder’s receipt of the lease, the remainingfour-fifths of the bonus bid and the first year’sannual rental for the lease must be paid by EFTdirectly to the U.S. Treasury. If a high bid isrejected during the bid evaluation process, thehigh bidder will be refunded the bonus amountplus interest.

The rental rate is specified in the leasedocument. Typically, the annual rental rate is$5.00-$6.25 per acre in water depths of lessthan 200 meters and $7.50-$9.50 per acre inwater depths of 200 meters or more in the GOMor $13.00 per hectare on the Alaska OCS. In2003, a sliding scale rental schedule was usedfor Sale 186 in the Beaufort Sea.

The lessees pay rentals until royalties are dueon production from their leases and at that time,rentals are replaced by royalties, or in somecases, minimum royalty payments. In general,the lessee must pay rentals on or before the firstday of each lease year before the discovery ofoil or natural gas on a lease, and then on orbefore the last day of each lease year in any fullyear in which royalties on production are notdue. Once royalty-paying production begins ona lease, the lessee pays either the royalty or aminimum royalty equal to the annual rental, ifthe royalty paid on actual production is less thanthe prescribed minimum royalty. If minimumroyalty payments are due, they must be paidprior to the expiration of the applicable leaseyear. Many leases are awarded with royaltysuspension volumes specified in their leaseterms.

The royalty rate as well as royalty reliefprovisions for each block are specified in thenotice of sale. Royalty payments begin whenroyalty-bearing production from a lease starts.Generally, royalty payments owed the FederalGovernment are based on a percentage of thevalue of essentially all of the extracted miner-als. The royalty due the Federal Governmentmay be taken in value or in produced oil, knownas RIK. Royalty taken in value is a monetarypayment by the lessee, while RIK is a paymentby the lessee in crude oil itself. The FederalGovernment then sells the crude oil to eligiblerefiners who in turn pay for the value of the oilin the form of a monetary payment.

For the period 1954 through 2004, the FederalGovernment received almost $64 billion inbonuses, about $3 billion in rentals, and about

Chapter Six

37

$89 billion in royalties from oil and natural gasactivities on the OCS. Additionally, since 2000,some of the royalty on OCS oil, valued at about$3.2 billion, has been taken in-kind for deliveryto the Strategic Petroleum Reserve (SPR).

Some of the revenues from the OCS leases arecredited to the Land and Water ConservationFund and the National Historic PreservationFund, created pursuant to the Land and WaterConservation Act and the National HistoricPreservation Act. Current legislation dictatesthat the Land and Water Conservation Fund becredited with $900 million annually. The funddraws most of its income from Federal receiptsfrom OCS oil and natural gas leasing. Thetransfer of revenues to the Land and WaterConservation Fund amounted to about $19.9billion from 1982-2004. Transfers to theHistoric Preservation Fund amounted to $3.2billion during this same timeframe. Underamendments in 1986 to section 8(g) of theOCSLA, a portion of the revenues from certainleases is distributed to certain States. Duringthe years 1982-2004, about $3.2 billion wasdistributed to these States. More than $1.24billion was distributed to 36 states during FY2004 as part of their share of Federal revenuescollected by the MMS.

During FY 2004, the State of Wyoming againled all states by receiving more than $564million as its share of revenues collected frommineral production on Federal lands within itsborders, including oil, natural gas and coalproduction. New Mexico’s share was morethan $364 million, while $80.5 million wasreceived by the state of Colorado. Other statessharing in FY 2004 revenues included Utahwith more than $69 million; Louisiana withmore than $39 million; Montana at $30.2million; California with more than $28.9 mil-lion; and Texas, which received more than $15million.

Chapter Six continued

38

Operations SummaryThe lessee begins the exploration phase of leaseoperations in accordance with the hydrocarbonpotential of the lease, the availability of rigs,and various internal factors. As an initial step,the lessee conducts preliminary activities suchas geological, geophysical, cultural, andbiological surveys, which provide datanecessary to develop a comprehensive EP andan environmental report. Once completed, thelessee forwards the EP and environmentalreport to the MMS for approval.

The EP describes the proposed exploratoryactivities in detail including OSCP’s. Theenvironmental report contains additionalinformation pertaining to support facilitiesand activities and environmental aspects of theproposed operations. These documents formthe basis of a technical and environmentalanalysis performed by the MMS as part of itsreview procedure.

Concurrent with a technical and environmentalreview by the MMS, the EP and environmentalreport are subject to review by other FederalAgencies, Governors of all affected states, andother State agencies. The State review includesa CZM consistency review pursuant to theCZMA. In addition, the EP and environmentalreport are made available for public review andcomment.

Even though MMS approves an EP, actual drill-ing cannot begin until the lessee has submittedand received approval of an APD, which isrequired for each proposed well. The APDincludes extensive detail about the drillingprogram with an emphasis on matters pertainingto operational safety and pollution prevention.

The APD can not be approved until Stateconcurrence with the CZM consistencycertification is received or conclusivelypresumed.

The objective of the exploration phase is todiscover oil or natural gas in commercialquantities. To accomplish this, the lessee willdrill one or more wells from drilling unitswhich can be categorized as (1) floating units,such as drillships, semisubmersibles, anddrilling barges; and (2) bottom-founded unitsthat are floated to the drillsite but rest on theseafloor during drilling operations. Drillingunits in the latter category are jackups andsubmersibles.

In Arctic regions, wells are often drilled fromgravel or ice islands or specially designed unitssuch as a concrete island drilling system and amobile arctic caisson. A well generally willtake from one to six months to drill. Once theresults are known to the lessee, the well willbe plugged, either temporarily or permanentlyabandoned, and the drilling equipment movedto a new site.

When an oil or natural gas reservoir has beendiscovered and its extent determined throughdelineation drilling, the lessee may commencethe development and production phase of oper-ations. These operations must be describedin a DPP that includes an OSCP and anenvironmental report. The DPP is preparedby the lessee and is submitted to the MMS forapproval. It is forwarded by the MMS forreview to all affected states, State coastalagencies, and interested Federal Agencies.

Chapter Seven

39

The review process is similar to that for the EP,including CZM consistency review. An EA isprepared and, if the MMS determines thatapproval of the plan constitutes a major Federalaction significantly affecting the quality of thehuman environment, an EIS is prepared. Atleast one DPP in each area other than the GOMis declared a major Federal action and an EIS isprepared. Operations described in the plancannot be undertaken until the plan is approvedby the MMS and necessary permits issued.These permits, such as an APD for a wellproposed in the plan, cannot be approved untilState concurrence for the CZM consistencycertification is received or conclusivelypresumed.

Development and production entails installationof platforms and production systems and thedrilling of development wells. In addition,onshore support facilities, if not already inplace, must be constructed. The oil and naturalgas produced offshore are separated and movedto shore for final processing. The natural gas istransported solely by pipelines, while crude oilis moved by pipeline, barge, or tanker to shorefacilities. All platform and artificial islandinstallations, platform facilities, and pipelinesrequire the MMS approval.

A production platform may accommodate from1 to as many as 100 production and injectionwells and will remain in place for the life of thereservoir or field, which could be over 30 years.During the productive life of a field, the lesseeconducts well workover or repair operations ofvarious types to maintain a high productionlevel. Most of these operations require theMMS approval.

Throughout the drilling and production phases,the MMS inspects the operations to ensurecompliance with regulations. This furtherensures operational safety and pollution pre-vention. It also requires drilling personnel betrained in well control.

Other MMS involvements include the grantingof suspensions of production or operations; set-ting maximum rates of production; estimatingreserves; approving unit, pooling, and drillingagreements, when applicable; and approvingapplications for permission to install pipelinesboth on and off a lease.

When a field can no longer be economicallyproduced and the lease expires, the lessee, withthe MMS approval, must plug and abandon allwells and remove all equipment from the lease,including the platform and any subsea devices.

Chapter Seven continued

40

Other Multiple Use Resources on the OCSIncreasingly, the private sector is consideringnon-traditional energy and energy-relatedprojects on the OCS, including renewableenergy projects e.g., technologies to harnesswind and other resources and facilities tohandle liquefied natural gas and compressednatural gas. The oil and natural gas industryis evaluating ancillary projects offshore thatwould directly support the OCS oil and naturalgas production, such as emergency medicalfacilities. Using existing OCS platforms tosupport other marine-related uses such asmariculture projects or recreationalopportunities is also being investigated.

The Energy Policy Act of 2005 (signed intolaw on August 8, 2005) grants authority to theMMS to manage and oversee alternative-energyrelated projects on the OCS. Prior to thisprovision, there was a gap in the law withrespect to alternative energy projects. Thisprovision provides 27 percent sharing of anyrevenue generated from these types of projectsin distances up to 3 miles seaward of Statewaters.

Chapter Eight

41

AppendicesAppendix A: GlossaryAppendix B: Abbreviation ListAppendix C: OCS Milestones and Influences (1896-2005)

43

GlossaryApplication for Permit to Drill – the form required by the MMS for the applicant to provide theappropriate MMS district office sufficient data to uniquely identify a wellbore that is to be drilled onFederal lands in the OCS under an approved exploration or development and production plan. Thispermit allows MMS to address the technical adequacy and regulatory compliance of the proposeddrilling activity.

Area Identification – lease sale process step that determines the geographical area of the proposedaction, as well as alternatives, mitigation measures, and other issues to be analyzed in an environ-mental document.

Call for Information and Nominations – document informing the public of the area underconsideration for oil and gas leasing; solicits documents and invites public input.

Clean Air Act – legislation regulating the emission of air pollutants from individual activities.

Clean Water Act – legislation regulating the discharge of toxic and nontoxic pollutants into surfacewaters.

Coastal Zone Management Act – legislation requiring States to review Federal actions that wouldaffect land and water use of the coastal zone.

Consistency Determination – an analysis by the Federal Government of whether a proposed Federalactivity is consistent to the maximum extent practicable with the enforceable provisions, standards,and policies of an affected State’s approved Coastal Management Program as identified by theaffected State.

Continental Margin – the submerged seaward extension of the continent.

Continental Shelf – submerged offshore area lying seaward of the territorial sea to a depths of 200meters (656 feet).

Cooperating Agency Agreement – document providing for cooperation between two or moreagencies.

Council on Environmental Quality – coordinates Federal environmental efforts and works closelywith agencies and other White House offices in the development of environmental policies andinitiatives.

Appendix A

45

46

Deepwater – refers to water depths greater than or equal to 305 meters (1,000 feet).

Development Operations and Coordination Document – is considered a development andproduction plan in all cases (laws, regulations, etc.) referring to the preparation or submission of aplan.

Electronic Funds Transfer – provides for electronic payments and collections.

Environmental Assessment – a concise public document for which a Federal Agency shall providesufficient evidence for determining the need to prepare an EIS or finding of no significant impact.

Environmental Impact Statement – a detailed written statement as required by the NEPA.

Exploration Plan – document describing the proposed exploratory activities in detail.

5-Year Leasing Program – Section 18 of the OCSLA requires the Secretary of the Interior toprepare and maintain an OCS oil and gas leasing program. The program consists of scheduled leasesales for a 5-year period; policies pertaining to the size, timing, and location of sales; and provisionsfor the receipt of fair market value.

Federal Register – Federal daily publication for rules, proposed rules, and notices.

Fossil Fuel – hydrocarbons containing natural resources such as coal, petroleum, and natural gas.

Gas Hydrates – refers to ice-like crystalline solid formed from a mixture of water and natural gas;usually methane.

Liquefied Natural Gas – refers to natural gas in a liquid form.

National Environmental Policy Act – legislation requiring that a detailed environmental review bemade prior to decisions being made on major or controversial Federal actions.

Nonrenewable – refers to energy sources that now are unable to be made in a short period of time.

Notice of Intent to Prepare an EIS – invites public participation in determining significant issues,mitigating measures, and alternatives to be analyzed in an EIS.

Notices to Lessees and Operators – MMS documents used to distribute information to lesseesand operators. The NTL may be issued for several reasons, e.g. providing an interpretation of aregulation or transmitting administrative information such as a change in an MMS office address.

Appendix A continued

Outer Continental Shelf – refers to a legal term created by Federal statute.

OCS Deepwater Royalty Relief Act – legislation providing incentives for offshore oil and gasoperators to develop fields in water depths greater than 200 meters (656 feet).

Policy Committee – the OCS Policy Committee is appointed by the Secretary of the Interior andadvises the Secretary, through the Director of the MMS, on policies used in managing OCSresources.

Scientific Committee – the OCS Scientific Committee is appointed by the Secretary of the Interiorand advises the Secretary, through the Director of the MMS on the feasibility, appropriateness, andscientific value of the OCS Environmental Studies Program to meet the scientific information needspertaining to the OCS Oil and Gas and Marine Minerals Programs.

Scoping – a process of identifying the scope and significance of important issues associated with aproposed Federal action, requiring extensive consultation and coordination with interested parties.

SPAR – is a floating cylinder that supports a deck and is connected to the seafloor by mooring (neck)below the water surface. The SPAR enjoys some desired motion characteristics, such as low heaveresponse due to its deep draft, insensitivity to water depth, and relative insensitivity to deck loads.

Studies Development Plan – plan providing statements of information needs, priorities, and costestimates.

Ultra-deepwater – refers to water depths greater than or equal to 1,524 meters (5,000 feet).

47

AbbreviationsAPD Application for Permit to DrillASLM Assistant Secretary for Land

and Minerals Management

CAA Clean Air ActCall Call for Information and

NominationsCD Consistency DeterminationCEQ Council on Environmental

QualityCER Categorical Exclusion ReviewCOST Continental Offshore

Stratigraphic TestCWA Clean Water ActCZM Coastal Zone ManagementCZMA Coastal Zone Management Act

DOCD Development OperationsCoordination Document

DOC U.S. Department of CommerceDOD U.S. Department of DefenseDOE U.S. Department of EnergyDOI U.S. Department of the InteriorDOT U.S. Department of

TransportationDPA Deepwater Ports ActDPP Development and Production PlanDST Deep Stratigraphic TestDWRRA Deepwater Royalty Relief Act

EA Environmental AssessmentEEZ Exclusive Economic ZoneEFT Electronic Transfer of FundsEIS Environmental Impact StatementEP Exploration PlanEPA U.S. Environmental Protection

AgencyESP Environmental Studies Program

FACA Federal Advisory Committee ActFERC Federal Energy Regulatory

Commission

FNOS Final Notice of SaleFY Fiscal YearFWS U.S. Fish and Wildlife Service

GOA Gulf of AlaskaGOM Gulf of Mexico

LNG Liquefied Natural Gas

MARAD Maritime AdministrationMMBOE Millions barrels of oil equivalentMMS Minerals Management ServiceMRM Minerals Revenue Management

NEPA National Environmental Policy ActNMFS National Marine Fisheries ServiceNPDES National Pollutant Discharge

Elimination SystemNOAA National Oceanic &

Atmospheric AdministrationNOI Notice of Intent to Prepare an EISNSL National Studies ListNTL Notice to Lessees and Operators

OCS Outer Continental ShelfOCSLA Outer Continental Shelf Lands ActOMB Office of Management and BudgetOMM Offshore Minerals ManagementOPA Oil Pollution ActOSCP Oil Spill Contingency Plan

PNOS Proposed Notice of Sale

RIK Royalty-in-KindROD Record of Decision

SDP Studies Development PlanSPR Strategic Petroleum Reserve

USCG U.S. Coast GuardUSGS U.S. Geological Survey

48

Appendix B

OCS Milestones and Influences (1896-2005)Date Action Result

Pre-Outer Continental Shelf Lands Act

Post-Outer Continental Shelf Lands Act

• First Offshore oil production in the UnitedStates.

• First GOM offshore discovery well drilledin State waters.

• First GOM OCS exploratory well drilled inFederal waters.

• First well drilled from fixed platform off-shore almost out of sight of land in Federalwaters.

• Submerged Lands Act passed.

• OCSLA passed.

• First OCS lease sale held.

• First Pacific offshore drilling and productionplatform erected in State waters.

• Initial Alaska Prudhoe Bay Field discoverymade by exploratory well.

1896

1938

1946

1947

1953

1954

1958

1967

• From wooden pier off Summerland, CA, inState waters.

• Creole Field, 2.4 km (1.5mi) from Louisianacoast in 4.2 m (14 ft) of water from a 100 x300 ft drilling platform secured to a founda-tion of timber piles.

• 16 km (10 mi) southeast of Eugene Island bythe Magnolia Petroleum Company.

• Ship Shoal area 19.3 km (12 mi) south ofTerrebonne Parish, LA, in 4.8 m (16 ft) ofwater by Kerr-McGee. Fixed platform/drilling tender combination was major breakthrough in drilling-unit design for offshoreuse.

• Grants coastal States jurisdiction over a beltof submerged lands that extends seaward offthe coast 3 nautical miles (3.45 statute milesor 5.5 km) except for the coast of Texas andFlorida where jurisdiction extends 3 marineleagues (10.35 statute miles or 16.65 km).

• Provides for Federal jurisdiction over theOCS and authorizes the Secretary of theInterior to lease those lands for mineraldevelopment.

• Offered blocks offshore Louisiana. The salebrought $116,378,476 in bonuses into theFederal Treasury.

• Platform Hazel in 30 m (100 ft) of water and3.2 km (2 mi) offshore Summerland, CA, byHumble Oil & Refining Company andWestern Operations, Inc.

• Well drilled by ARCO.

49

Appendix C

1968

1969

1970

1972

1973

1975

1976

1977

1978

1979

• First Pacific OCS production.

• Santa Barbara Oil Spill.

• NEPA passed.

• CAA passed.

• CZMA passed.

• Marine Mammal Protection Act passed.

• Endangered Species Act passed.

• First Alaska COST well drilled.

• First Alaska lease sale held.

• First Alaska OCS exploratory well drilled.

• First Atlantic COST well drilled.

• CWA passed.

• Major amendments to the OCSLA passed.

• First Mid-Atlantic OCS exploratory welldrilled.

• First South Atlantic OCS exploratory welldrilled.

• Platform Hogan, Lease OCS-P 0166.

• Platform blowout in Federal waters spurreddevelopment of oil spill regulations andresearch.

• Requires a detailed environmental review andstatement before any major or controversialFederal action.

• Regulates the emission of air pollutants fromindustrial activities.

• Requires State review of Federal action thataffects the land and water use of coastal zone.

• Provides for the protection and conservationof all marine mammals and their habitats.

• Requires a permit to “take” an endangeredspecies. All Federal Agencies must ensurethat Federal actions will not significantlyimpair or jeopardize protected species ortheir habitats.

• GOA.

• Lease Sale 39 in GOA. Bonus bidstotaled $571,871,587.

• GOA, Block 106, by Shell Oil.

• B-2 well drilled in the Baltimore CanyonTrough for a total depth of 16,043 feet.

• Regulates discharge of pollutants into thesurface waters of the United States.

• Major changes included; Requirements for5-year leasing programs; formalized environ-mental studies program; and formalizedcoordination and information sharing.

• Block 683, NJ 18-3, by Exxon, 5,370 meters(17,720 ft) deep.

• Block 2089, NH 17-5, by Tenneco, 2,363meters (7,754 ft) total well depth.

Date Action Result

50

Appendix C continued

Date Action

• First 5-Year Leasing Program initiated.

• First OCS leasing moratorium enacted byCongress (FY 1982).

• Highest bid on a block received.

• First North Atlantic OCS exploratory welldrilled.

• MMS created as a bureau of the DOI fromparts of Bureau of Land Management andthe U.S. Geological Survey.

• Federal Oil and Gas Royalty ManagementAct passed.

• Initial 5-Year Leasing Program revised.

• Record number of lease sales in a year.

• Greatest high bid dollar amount receivedat a lease sale.

• First compliant guyed-tower platform.

• First preleasing moratorium enacted(FY 1984).

• President signs Proclamation 5030(3 CFR 22) establishing the U.S. EEZ.

• National Fishing Enhancement Act passed.

• Between 1980 and 1982, twelve OCS leasesales were held.

• In Central and Northern California OCS.Leasing moratoria was later extended tosix other OCS planning areas.

• $333,596,200 in Central and NorthernCalifornia Lease Sale 53, NI 10-06,Block 464. (This block is now part ofthe Southern Califonia planning area.)

• Block 133, NK 19-12, by Exxon, 4,303meters (14,118 ft) deep.

• With mission to manage OCS mineralresources in an environmentally sound andsafe manner and to collect, verify, and dis-tribute mineral revenues from Federal andIndian lands.

• Designed primarily to assure proper andtimely revenue accountability from pro-duction and leasing of Federal lands.

• Introduced area-wide leasing.

• Eight sales: GOM 69 (2), 72, 74; PAC 73;AK 57, 70; and ATL 76, 78.

• $4,469,214,969 in the Central GOM LeaseSale 72.

• In the GOM, 181.3 kilometers (110 mi)southeast of New Orleans, LA, in 303 meters(1,000 ft) of water.

• North Atlantic.

• The EEZ is the area contiguous to theterritorial sea of the United States, theCommonwealths of Puerto Rico, and theNorthern Mariana Islands, and the U. S.overseas territories and possessions, andextends 200 nautical miles from the coastline.

• Encourages using offshore oil platforms asartifical reefs.

Result

1980

1981

1982

1983

1984

51

Date Action Result

1984continued

1985

1986

1988

1989

1990

• Most tracts offered at a lease sale.

• Record number of exploratory wells drilledin a year.

• Record number of platform installations ina year.

• Well drilled farthest from shore.

• Deepest well drilled.

• OCSLA Amendments to Section8 (g) passed.

• Congress enacts first OCS drilling ban(FY 1989 DOI appropriations).

• Lease in deepest water.

• Most bids received on a block.

• The President establishes OCS Task Forceto examine concerns over adverse impactsof lease sales offshore California andEastern GOM, south of 260 N.

• Amendments to CAA passed.

• Oil Pollution Act of 1990 (OPA-90) passed.

• 8,868 tracts in the Eastern GOM LeaseSale 79.

• 597 in the GOM.

• 229 in the GOM.

• 965 kilometer (603 mi) in Navarin Basin,Alaska, Block 673; ARCO, Inc.

• 7,620 meters (25,001 ft) in the CentralGOM,Viosca Knoll, Block 1177, byApache Corporation.

• Distributed funds in escrow to FederalGovernment and affected States.

• 73 existing leases in Eastern GOM, South of260 N Latitude. Drilling moratoria was laterexpanded to include North AleutianBasin, Alaska, and leases offshore NorthCarolina.

• 3,335 meters (10,942 ft) in the Eastern GOM,Lease Sale 116, in Lloyd Ridge, Block 737,by Kerr-McGee Corp.

• 15 in Western GOM Lease Sale 122, offshoreGalveston, TX, Block 313.

• The EPA authorized to set air qualitystandards and regulate air emissions. Listed189 chemical categories for which EPA wouldset national emissions standards.

• Enacted in response to a number of largetanker spills with the objectives of (1)preventing discharges of oil into Federalwaters from vesels and facilities and (2)ensuring that owners and operators have theresources to clean up such spills should theyoccur.

52


• North Carolina Outer Banks Protection Actpassed.

• President decides to withdraw certain areasfor lease.

• Deepest producing natural gas well.

• Secretary of the Interior delegated OPA-90authority to MMS.

• Conoco Inc. vs. The United States lawsuit.

• Most platform removals in a year.

• Full transfer of OCS Air Regulations to EPA.

• Deepwater Royalty Relief Act passed.

• Settlement agreement reached as part ofConoco lawsuit.

• Prohibited the Secretary of the Interiorfrom conducting a lease sale, issuing anynew leases; approving any exploration,development and production plans, or anyapplications for permit to drill; or permittingany drilling for oil and gas under the OCSLAon any OCS lands offshore North Carolina.Stipulated that an Environmental SciencesReview Panel be established no later than 6months after enactment.

• Areas offshore California, Washington, andOregon, North Atlantic, and Eastern GOM(south of 280) until after the year 2000.

• 6,668 meters (21, 878 ft) in the GOM, WellA001, Lease OCS-G 5058, Mobile Block 821,by BP Exploration & Oil Inc.

• Gave MMS the responsibility for certifying(1) oil spill prevention and response plans forall offshore oil and gas facilities, includingplatforms and pipelines in State waters as wellas on the OCS, and (2) financial responsibilityfor oil spill liability at an increased level of$150 million for all operators of offshorefacilities, including pipelines.

• Lawsuit concerning congressional moratoriapreventing drilling of existing leases in certainareas.

• 182 removals in the GOM.

• Air quality regulatory authority for PacificOCS facilities transferred from DOI to EPA.The EPA transferred authority to local air pollution control districts.

• Expands MMS’s discretionary authority togrant royalty relief and mandates royaltyrelief under certain conditions for GOMleases in 200 meters (658 ft) or greaterwater depth.

• Certain leases under litigation were relinquished to the Federal Government by lessees compensation.

1990continued

1991

1992

1993

1994

1995

Date Action Result

53


Date Action Result

1996

1997

1998

• OPA-90 Amendments passed.

• Congress repeals Section 6003 of OPA-90(Outer Banks Protection Act).

• World’s first production SPAR installed.

• Producing well in GOM’s deepest water.

• GOM deepwater production record andworld record tieback set.

• Royalty Simplication and Fairness Actsigned.

• Most bids received at a lease sale.

• Most tracts bid on at a lease sale.

• GOM gas production record set.

• First royalty relief granted under theDeepwater Royalty Relief Act for existingleases.

• GOM water-depth drilling record.

• Applied to financial responsibility for offshorefacilities and to spill prevention within Statewaters.

• Repeal of North Carolina leasing and drillingmoratorium.

• 564 meters (1,851 ft) of water in VioscaKnoll, Neptune SPAR by Oryx Energy inCentral GOM.

• Platform Mars in 896 meters (2,940 ft) ofwater in Central GOM. Mississippi CanyonBlock 807, Shell Deepwater Production, Inc.

• Mensa Field subsea system in 1,615 meters(5,300 ft) of water 225 kilometers (140 mi)southeast of New Orleans, LA, with 12-inchflow line tied back to 109 kilometers (68 mi)to a shallow water platform.

• Designed to improve the management ofroyalties from Federal and OCS oil and gasleases, was the first major legislationaffecting royalty management since theFederal Oil and Gas Royalty ManagementAct of 1982.

• 1,790 bid for Central GOM Lease Sale 166.

• 1,032 tracts for Central GOM Lease Sale 166.

• Southeast Tahoe Field, Viosca Knoll Block784, production rate of 119 MMcfd from asingle satellite well tied back to the Bud Litefacility, 13 miles away.

• Granted to Tatham Offshore, Inc., for SundaySilence, a deepwater field offshore Louisianain 457 meters (1,500 ft) water depth, about45 kilometers (72 mi) offshore and about

84 kilometers (135 mi) south of New Orleans,LA.

• Set by the Glomar Explorer drill ship, at awater depth of 2,352 meters (7,718 ft),175 miles southeast of New Orleans, LA,in GOM’s Atwater Valley section. ChevronUSA Production Company led the project.

54

Date Action Result

1998continued

1999

2000

• Production record set in GOM (boepd).

• First freestanding offshore compliant towerand tallest freestanding structure in theworld.

• Pacific OCS national gas productionmilestone.

• Presidential Directive under the OCSLA toprevent leasing any area under moratoriumbefore 2012.

• Oil production from the deepwater portionof the GOM surpassed production from theshallow water portion.

• World water depth record set for an explor-atory well from an anchored rig in GOM.

• World’s tallest freestanding structure.

• World’s deepest water drilling and produc-tion platform located in the GOM.

• A-7 well in Ursa Field, Mississippi CanyonBlock 809, produced at a rate of 39,317 bpdof oil and 60.67 MMcfd of gas, or 50,150 boepd (oil equivalent). Exceeds previousrecord of 46,475 boepd set at the Troikadevelopment.

• Baldpate, located in 503 meters (1,650 ft) ofwater in GOM’s Garden Banks Block 260,extends almost 580 meters (1,902 ft) abovethe seafloor to the tip of its flare boom.

• One trillion cubic feet of natural gas produced.

• Extended by 10 years, areas previously undermoratoria.

• In November 1999, deepwater productionmarked a major milestone in the history ofGOM production, which started in shallowwater in 1947. At the time only 30 of 4percent of GOM’s 747 producing fields werein deepwater, however they provided overhalf of the GOM’s daily oil production.

• Announced by Shell Oil on July 4, 2000.The R&B Falcon Corporation’s DeepwaterNautilus spudded Baha 2 on the BahaProspect Alaminos Canyon Block 557reaching a water depth of 2,374 meters(7,790 ft).

• Installed in 535 meters (1,754 ft) of water inthe GOM as part of the Texaco USA com-pliant tower production system PetroniusProject, the structure rises almost 610 meters(2,000 ft) above the seafloor. Oil and gasproduction from the structure began onJuly 11, 2000.

• ExxonMobil Corporation announced onJuly 3, 2000, the startup of oil and gasproduction from their Hoover Diana devel-opment in 1,463 meters (4,800 ft) of water.

55

Date Action Result

2000continued

2001

• Longest horizontal reach record set for awell in the GOM.

• Incorporation of the first internationaltechnical standard in MMS regulations.

• GOM’s largest find to date.

• Pacific OCS oil production milestone.

• First Alaska OCS Production.

• World deepwater drilling record set at 9,687feet in the GOM.

• Offshore world record set for an oil and gasproduction tieback in the GOM.

• British Petroleum spudded the horizontalwell on May 7th and reached the total depthon July 5th. The directional well has a 6,722meter (22,056 ft or 4.18 mi) offset, with a truevertical depth of 3,003 meters (9,854 ft) and ameasured depth of 7,836 meters (25,709 ft or4.9 mi).

• The MMS incorporated the API version ofthe ISO standard - API Spec 14A, Petroleumand Natural Gas Industries - Downhole Equip-ment - Subsurface Safety Valve Equipment.

• British Petroleum and ExxonMobil Corpora-tion announced a major discovery in thedeepwater GOM on February 13th. Located5 miles north-west of the Thunder HorseField on Mississippi Canyon Block 776, thisnew discovery will produce 1 billion barrels,making it the largest ever opened in theGOM and ranking as one of the five largestfields in the GOM. The Discoverer 534drillship spudded the hole in 1,719 meters(5,640 ft) of water and drilled to a total depthof 7,938 meters (26,045 ft or 4.9 mi).

• One billion barrels of oil produced.

• October 31, 2001 - North Star Unit.

• Transocean Sedco Forex’s drillship,Discoverer Spirit, spudded an explorationwell in 2,945 meters (9,687 ft) of water whileworking for Unocal at their Trident Prospectlocated in Alaminos Canyon, Block 903.

• ExxonMobil began production on its MicaProject in 4,350 feet of water on MississippiCanyon Blocks 167 and 211 located 100 milessouth of Mobile Bay, Alabama. The subseadevelopment project is tied back by an underwater flowline 29 miles to the existingPompano platform. The tieback involvesboth oil and gas. Production started at a rateof 140 million cubic feet of natural gas and13,000 barrels of oil per day.

56


Date Action Result

2002

2003

2005

• World Water Depth Record for well produc-tion and laying a pipeline set at 7,209 feet inthe GOM.

• World Record Water Depth Free-FloatingDry Tree System.

• First LNG Proposal submitted under theDeepwater Ports Act.

• Tallest self standing well conductor (pipe).

• The MMS began performing USCG’s fixed facility inspections per agreement between the two agencies.

• New GOM gas flow rate record.

• First well in water deeper than 10,000 ft -new world water depth drilling record.

• The Energy Policy Act of 2005 signed intolaw on August 8, 2005.

• Marathon set the record for well productionin Camden Hills consisting of 2 subsea wellswith flowlines connected to Canyon Express.TotalFinaElf set the record for laying a pipe-line in Camden Hills. Canyon Express linksCamden Hills, Aconcaugua, and Kings Peaknatural gas fields.

• BP’s Horn Mountain Truss Spar at MC 127 in5,400 feet of water.

• Chevron/Texaco filed application with theUSCG on December 3, 2002.

• Located in the GOM in 174 feet of water.Shell’s Fergana - Chiles Magellan,OCS-G 22754, Well 1, South Timbalier 239.

• October 2002.

• Shell’s Mensa new well record of 143MMcfpd.

• Transocean drillship Discover Deep Seasspudded a well in 10,011 feet (3,051 meters)of water while constructing Chevron Texaco’sToledo well in Alaminos Canyon Block 951.

• Authority granted to MMS to manage andoversee alternative-related projects on theOCS.

58 57

Securing Ocean Energy &Economic Value for AmericaMMS

The Department of the Interior Mission As the Nation's principal conservation agency, the Department of the Interior has responsibility for most of our nationally owned public lands and natural resources. This includes fostering sound use of our land and water resources; protecting our fish, wildlife, and biological diversity; preserving the environmental and cultural values of our national parks and historical places; and providing for the enjoyment of life through outdoor recreation. The Department assesses our energy and mineral resources and works to ensure that their development is in the best interests of all our people by encouraging stewardship and citizen participation in their care. The Department also has a major responsibility for American Indian reservation communities and for people who live in island territories under U.S. administration. The Minerals Management Service Mission As a bureau of the Department of the Interior, the Minerals Management Service's (MMS) primary responsibilities are to manage the mineral resources located on the Nation's Outer Continental Shelf (OCS), collect revenue from the Federal OCS and onshore Federal and Indian lands, and distribute those revenues. Moreover, in working to meet its responsibilities, the Offshore Minerals Management Program administers the OCS competitive leasing program and oversees the safe and environmentally sound exploration and production of our Nation's offshore natural gas, oil and other mineral resources. The MMS Minerals Revenue Management meets its responsibilities by ensuring the efficient, timely and accurate collection and disbursement of revenue from mineral leasing and production due to Indian tribes and allottees, States and the U.S. Treasury. The MMS strives to fulfill its responsibilities through the general guiding principles of: (1) being responsive to the public's concerns and interests by maintaining a dialogue with all potentially affected parties and (2) carrying out its programs with an emphasis on working to enhance the quality of life for all Americans by lending MMS assistance and expertise to economic development and environmental protection.

www.mms.gov

U.S. DEPARTMENT OF THE INTERIOR MINERALS MANAGEMENT SERVICE

Date post:	23-Jan-2021
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times

LEASING OIL AND NATURAL GAS RESOURCES - BOEM · 2019. 10. 14. · In the search for oil and natural...

Documents