Offshore Oil and Gas Development: Legal Framework

Order Code RL33404 Offshore Oil and Gas Development: Legal Framework Updated January 30August 5, 2008 Adam Vann Legislative Attorney American Law Division Offshore Oil and Gas Development: Legal Framework Summary The development of offshore oil, gas, and other mineral resources in the United States is impacted by a number of interrelated legal regimes, including international, federal, and state laws. International law provides a framework for establishing national ownership or control of offshore areas, and domestic federal law mirrors and supplements these standards. Governance of offshore minerals and regulation of development activities are bifurcated between state and federal law. Generally, states have primary authority in the three geographical -geographical-mile area extending from their coasts. The federal government and its comprehensive regulatory regime governsgovern those minerals located inunder federal waters, which extend from the states’ offshore boundaries out to at least 200 nautical miles from the shore. The basis for most federal regulation is the Outer Continental Shelf Lands Act (OCSLA), which provides a system for offshore oil and gas development planningexploration, leasing, exploration, and ultimate development. Regulations run the gamut from health, safety, resource conservation, and environmental standards to requirements requirements for production based royalties and, when appropriatein some cases, royalty relief and other development incentives. Several contentious legal issues remain the subject of national debate and legislative proposals. Before adjournment, the 109th other development incentives. In 2006, Congress passed a billmeasure that would allow new offshore drilling in the Gulf of Mexico in an area known as Lease Area 181. This measure was incorporated into H.R. 6111, a broad bill passed in the final days of the 109th Congress. President Bush signed the bill into law (P.L. 109432) on December 20, 2006. At the same time, the role of the coastal states in deciding whether to lease in areas adjacent to their shores has also received recent attention, with some legislative proposals granting significant decisional authority to state governments while others would direct the Secretary of the Interior to lease specific areas, limiting the state role to what is provided under existing statutes. In addition to these legislative efforts, there has also been significant litigation related to offshore oil and gas development. Cases handed down over a number of years have clarified the extent of the Secretary’s discretion in deciding how leasing 109-432) on December 20, 2006. Areas of the North Aleutian Basin off the coast of Alaska have also been recently made available for leasing by executive order. The five-year plan for offshore leasing for 2007-2012 adopted by the Minerals Management Service in December of 2007 proposed further expansion of offshore leasing. Several contentious legal issues remain the subject of national debate and legislative proposals, including the possibility of opening up more areas of the Outer Continental Shelf to exploration and production, or encouraging or mandating certain efforts to speed up or enhance exploration and possible production at existing leaseholds. At the same time, the role of the coastal states in deciding whether to lease in areas adjacent to their shores has also received recent attention. In addition to these legislative and regulatory efforts, there has also been significant litigation related to offshore oil and gas development. Cases handed down over a number of years have clarified the extent of the Secretary of the Interior’s discretion in deciding how leasing and development are to be conducted. Contents Ocean Resource Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Federal Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 State Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Coastal State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Federal Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Moratoria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Leasing and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 The Five-Year Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Exploration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1110 Development and Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1211 Lease Suspension and Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1312 Legal Challenges to Offshore Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1514 Suits Under the Outer Continental Shelf Lands Act . . . . . . . . . . . . . . 1514 Suits Under the National Environmental Policy Act . . . . . . . . . . . . . . 1817 Appendix. . . . . . . . .State Laws That Ban or Regulate Offshore Resource Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 List of Figures Figure 1. Federal Outer Continental Shelf Areas19 List of Tables Table 1. State Laws That Ban or Regulate Offshore Resource Development: Policy and Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 List of Tables Table 1. State Laws That Ban or Regulate Offshore Mineral Development. . . . . . . . . . . . 2119 Offshore Oil and Gas Development: Legal Framework The development of offshore oil, gas, and other mineral resources in the United States is impacted by a number of interrelated legal regimes, including international, federal, and state laws. International law provides a framework for establishing national ownership or control of offshore areas, and United States domestic law has, in substance, adopted these internationally recognized principles. U.S. domestic law further defines U.S. ocean resource jurisdiction and ownership of offshore minerals, dividing regulatory authority and ownership between the states and the federal government based on the resource’s proximity to the shore. This report1report explains the nature of U.S. authority over offshore areas pursuant to international and domestic law. It also describes the laws, at both the state and federal levels, governing the development of offshore oil and gas and the litigation that has flowed from development under the currentthese legal regimes. Also included is an outline of the recent changes to the authorities regulating offshore development wrought by the Energy Policy Act of 2005 and subsequent legislation enacted by the 109th Congress prior to adjournment. Finally, this report discusses legislation under consideration by the 110th Congress that might also amend existing law in this areaand executive action as well as a discussion of recent executive action and legislative proposals to encourage further offshore exploration and production. Ocean Resource Jurisdiction Under the United Nations Convention on the Law of the Sea,21 coastal nations are entitled to exercise varying levels of authority over a series of adjacent offshore zones. Nations may claim a twelve nautical 12-nautical-mile territorial sea, over which they may exercise rights comparable to, in most significant respects, sovereignty. An additional additional area, termed the contiguous zone and extending 24 nautical miles from the coast (or baseline), may also be claimed. In this area, coastal nations may regulate in so far as necessary, as necessary, to protect the territorial sea and to enforce their customs, fiscal, immigration, and sanitary laws. Further, in the contiguous zone and an additional area, the exclusive economic zone (EEZ), coastal nations have sovereign rights to explore, exploit, conserve, and manage marine resources and jurisdiction over: (i) the establishment and use of artificial islands, installations and structures; (ii) marine scientific research; and (iii) the protection and preservation of the marine environment.3 1 This report was authored originally by Aaron M. Flynn. 2 2 1 United Nations Convention on the Law of the Sea III (entered into force November 16, 1994) (hereinafter UNCLOS). 32 Id. at Art. 56.1 CRS-2 The EEZ extends 200 nautical miles from a nation’s recognized coastline. This area overlaps substantially with another offshore area designation, the continental shelf. International law defines a nation’s continental shelf as the seabed and subsoil of the submarine areas that extend beyond either “the natural prolongation of [a coastal nation’s] land territory to the outer edge of the continental margin, or to a distance of 200 nautical miles from the baselines from which the breadth of the territorial sea is measured where the outer edge of the continental margin does not extend up to that distance.”43 In general, however, under the Convention a nation’s continental shelf cannot extend beyond 350 nautical miles from its recognized coastline regardless of submarine geology.54 In this area, as in the EEZ, a coastal nation may claim “sovereign rights” for the purpose of exploring and exploiting the natural resources of its continental shelf.6 5 Federal Jurisdiction. While a signatory to UNCLOS, the United States has not ratified the treaty. Regardless, many of its provisions are now generally accepted principles of customary international law and, through a series of Executive Orders, the United States has claimed offshore zones for itself that are virtually identical to those described in the treaty.76 In a series of related cases, the U.S. Supreme Court confirmed federal control of these offshore areas.87 Federal statutes also regularly refer to these areas and, in some instances, define them as well. Of particular relevance, the primary federal law governing offshore oil and gas development indicates that it applies to the “outer Continental Shelf,” which it defines as “all submerged lands lying seaward and outside of the areas ... [under state control] and of which the subsoil and seabed appertain to the United States and are subject to its jurisdiction and control....”9 8 Thus, the U.S. Outer Continental Shelf (OCS) would appear to comprise an area extending at least 200 nautical miles from the official U.S. coastline and possibly further where the geological continental shelf extends beyond that point. The federal government’s legal authority to provide for and to regulate offshore oil and gas development therefore applies to seemingly all areas 4 3 Id. at Art. 76.1. 54 Id. at Art. 76.4-76.7. 65 Id. at Art. 77.1. 76 Policy of the United States with Respect to the Natural Resources of the Subsoil and Sea Bed of the Continental Shelf, Proclamation No. 2667, 10 Fed. Reg. 12,303 (September 28, 1945); Exclusive Economic Zone of the United States of America, Proclamation No. 5030, 48 Fed. Reg. 10,605 (March 14, 1983); Territorial Sea of the United States of America, Proclamation No. 5928, 54 Fed. Reg. 777 (December 27, 1988); Contiguous Zone of the United States, Proclamation No. 7219, 64 Fed. Reg. 48,701 (August 2, 1999). 87 See United States v. Texas, 339 U.S. 707 (1950); United States v. Louisiana, 339 U.S. 699 (1950); United States v. California, 332 U.S. 19 (1947). In accordance with the Submerged Lands Act, states generally own an offshore area extending three geographical miles from the shore. Florida (Gulf coast) and Texas, by virtue of their offshore boundaries prior to admission to the Union, have an extended, three marine -marine-league offshore boundary. See United States v. Louisiana, 363 U.S. 1, 36-64 (1960); United States v. Florida, 363 U.S. 121, 121-29 (1960). 98 43 U.S.C. § 1331(a). CRS-3 development therefore applies to all areas under U.S. control except where U.S. waters have been placed under the primary jurisdiction of the states. State Jurisdiction. In accordance with the federal Submerged Lands Act of 1953 (SLA),109 coastal states are generally entitled to an area extending three geographical miles11miles10 from their officially recognized coast (or baseline).1211 In order to accommodate the claims of certain states, the SLA provides for an extended three marine league13-marine-league12 seaward boundary in the Gulf of Mexico if a state can show such a boundary was provided for by the state’s “constitution or laws prior to or at the time such State became a member of the Union, or if it has been heretofore approved by Congress.”1413 After enactment of the SLA, the Supreme Court of the United States held that the Gulf coast boundaries of Florida and Texas do extend to the three marine -marine-league limit; other Gulf coast states were unsuccessful in their challenges.1514 Within their offshore boundaries, coastal states have “(1) title to and ownership of the lands beneath navigable waters within the boundaries of the respective states, and (2) the right and power to manage, administer, lease, develop and use the said lands and natural resources....”1615 Accordingly, coastal states have the option of developing offshore oil and gas within their waters; if they choose to develop, they may regulate that development. Coastal State Regulation. State laws governing oil and gas development in state waters vary significantly from jurisdiction to jurisdiction. Some state laws are limited to a single paragraph and do not differentiate between onshore and offshore state resources; other states do not distinguish between oil and gas and other types of minerals. In addition to regulation aimed specifically at oil and gas development, it should be noted that a variety of other laws could impact offshore development, such as environmental and wildlife protection laws and coastal zone management regulation. Finally, in states that authorize offshore oil and gas leasing, they decide which lands will be opened for development. Appendix A of this report contains a table of state laws banning or otherwise regulating offshore mineral development. The table indicates which state agency is primarily responsible for 10 9 43 U.S.C. §§ 1301 et seq. 1110 A geographical or nautical mile is equal to 6,080.20 feet, as opposed to the typical landstatute mile, which is equal to 5,280 feet. 1211 43 U.S.C. §1301(b). 1312 A marine league is equal to 18,228.3 feet. 1413 43 U.S.C. §§ 1312, 1301(b). 1514 United States v. Louisiana, 363 U.S. 1, 66 (1960) (“[P]ursuant to the Annexation Resolution of 1845, Texas’ maritime boundary was established at three leagues from its coast for domestic purposes .... Accordingly, Texas is entitled to a grant of three leagues from her coast under the Submerged Lands Act.”); United States v. Florida, 363 U.S. 121, 129 (1960) (“We hold that the Submerged Lands Act grants Florida a three-marine-league belt of land under the Gulf, seaward from its coastline, as described in Florida’s 1868 Constitution.”). 16 43 U.S.C. § 1311. CRS-4 authorizing oil and gas development 15 43 U.S.C. § 1311. CRS-4 for development. The Appendix of this report contains a table of state laws regulating and sometimes banning offshore mineral development. The table indicates which state agency is primarily responsible for authorizing oil and gas development and if state oil and gas leasing is limited to specific areas by statute. Federal Resources The primary federal law governing development of oil and gas in federal waters is the Outer Continental Shelf Lands Act (OCSLA).1716 As stated above, the OCSLA codifies federal control of the OCS, declaring that the submerged lands seaward of the state’s offshore boundaries appertain to the U.S. federal government. More than simply declaring federal control, the OCSLA has as its primary purpose “expeditious and orderly development [of OCS resources], subject to environmental safeguards, in a manner which is consistent with the maintenance of competition and other national needs....”1817 To effectuate this purpose, the OCSLA extends application of federal laws to certain structures and devices located on the OCS,19;18 provides that the law of adjacent states will apply to the OCS when it does not conflict with federal law,20;19 and, significantly, provides a comprehensive leasing process for certain OCS mineral resources and a system for collecting and distributing royalties from the sale of these federal mineral resources.2120 The OCSLA thus provides comprehensive regulation of the development of OCS oil and gas resources. Moratoria Although in general the OCSLA requires the federal government to prepare, revise, and maintain an oil and gas leasing program, many offshore areas are withdrawn from disposition under the OCSLA. There are currentlyUntil recently, there were two broad categories of OCS moratoria,moratoria applicable to OCS oil and gas leasing: those imposed by the President under authority granted by the Outer Continental Shelf Lands Act22 and those imposed directly by Congress, 17 43 U.S.C. §§ 1331-1356. 18 43 U.S.C. § 1332(3). 19 by the OCSLA,21 and those imposed directly by Congress, which have most often taken the form of limitations on the use of appropriated funds.22 The congressional moratorium first appeared in the appropriations legislation for Fiscal Year 1982. The language of the appropriations legislation barred the expenditure of funds by the Department of the Interior, or DOI (of which MMS is a part), for leasing and related activities in certain areas in the 16 43 U.S.C. §§ 1331-1356. 17 43 U.S.C. § 1332(3). 18 43 U.S.C. § 1333. The provision also expressly makes the Longshore and Harbor Workers’ Compensation Act, the National Labor Relations Act, and the Rivers and Harbors Act applicable on the OCS, although application is limited in some instances. 20 19 Id. 2120 43 U.S.C. §§ 1331(a), 1332, 1333(a)(1). 22 43 U.S.C. § 1341(a) (“The President of the United States may, from time to time, withdraw from disposition any of the unleased lands of the outer Continental Shelf.”). The President’s Memorandum on Withdrawal asserts that the presidential authority for imposing the OCS moratorium is contained in section 12(a) of the OCSLA. The statement also indicates that withdrawal from leasing is also authorized under those portions of the Marine Protection, Research, and Sanctuaries Act of 1972 authorizing the President, under certain circumstances, to establish marine sanctuaries and to impose certain levels of environmental protection within those sanctuaries. Notably, this presidential statement does not cite any inherent, constitutionally-based executive authority for executive control of OCS resources, and none is immediately apparent. In general, Congress, acting pursuant to its constitutional authority over federal property and U.S. territories and its authority over foreign and (continued...) CRS-5 which have most often taken the form of limitations on the use of appropriated funds.23 Congressionally imposed moratoria have been imposed since the early 1980s and have been approved annually thereafter. In 1990, President Bush issued a directive essentially paralleling the congressionally mandated moratoria, prohibiting most oil and gas development outside of the offshore areas associated with (though not belonging to) Texas, Louisiana, and Alabama.24 This presidential withdrawal was to be effective until after the year 2000. In 1998, President Clinton issued a new executive branch moratorium, lasting until June 30, 2012.25 The Clinton order refers to the 1997 congressional moratorium26 and adopts the substance of that enactment expressly, which itself included by reference those areas covered by the 1990 presidential withdrawal. The provisions of the moratorium state the following: SEC. 108. No funds provided in this title may be expended by the Department of the Interior for the conduct of offshore leasing and related activities placed under restriction in the President’s moratorium statement of June 26, 1990, in the areas of northern, central, and southern California; the North Atlantic; Washington and Oregon; and the eastern Gulf of Mexico south of 26 degrees north latitude and east of 86 degrees west longitude. SEC. 109. No funds provided in this title may be expended by the Department of the Interior for the conduct of offshore oil and natural gas preleasing, leasing, and related activities, on lands within the North Aleutian Basin planning area. SEC. 110. No funds provided in this title may be expended by the Department of the Interior to conduct offshore oil and natural gas preleasing, leasing and related activities in the eastern Gulf of Mexico planning area for any lands located outside Sale 181, as identified in the final Outer Continental Shelf 5Year Oil and Gas Leasing Program, 1997-2002. SEC. 111. No funds provided in this title may be expended by the Department of the Interior to conduct oil and natural gas preleasing, leasing and related activities in the Mid-Atlantic and South Atlantic planning areas.27 In addition, the President also withdrew from disposition by leasing all areas on the OCS designated as Marine Sanctuaries at the time. Areas under moratoria as of March 2006 are depicted in Figure 1.28 22 (...continued) interstate commerce, has sufficient constitutional authority to regulate OCS resources. 23 See, e.g., P.L. 108-447, §§ 107-109. 24 Statement on Outer Continental Shelf Oil and Gas Development, 26 WEEKLY COMP. PRES. DOC. 1006 (June 26, 1990). 25 Memorandum on Withdrawal of Certain Areas of the United States Outer Continental Shelf from Leasing Disposition, 34 WEEKLY COMP. PRES. DOC. 1111 (June 12, 1998). 26 27 28 P.L. 105-83. Id. Figure 1 does not account for the recent legislation that made the so-called “181 Area” in the Gulf of Mexico available for leasing. This legislation is discussed infra. CRS-6 Figure 1. Federal Outer Continental Shelf Areas Congressionally imposed moratoria have closely paralleled the structure and the substance of the Clinton-era withdrawal order discussed above. However, one significant legal difference does exist. The presidential withdrawal only prevents the “disposition by leasing” of the OCS areas it references. Thus, other activities authorized by the OCSLA, such as planning for lease sales or initial oil and gas exploration, might still be carried on in the absence of additional prohibitions. The congressional moratoria have consistently contained broader restrictions. These enactments typically preclude the expenditure of appropriated funds “for the conduct of offshore leasing and related activities” or, even more specifically, “for the conduct of offshore oil and natural gas preleasing, leasing, and related activities.”29 Thus, congressionally imposed moratoria would generally appear to have the effect of prohibiting leasing, exploration, planning for lease sales and other OCS oil and gas related activities authorized by the OCSLA. The enactment of the Energy Policy Act of 2005 does appear to alter this, however. Section 357 of that act requires the Secretary of the Interior to conduct an inventory and analysis of oil and natural gas resources beneath all of the waters of the U.S. OCS.30 The law permits some forms of exploration, including 3-D seismic technology, but prohibits drilling. The inventory is to include analysis of the existing regulatory structure, including the 29 See, e.g., P.L. 106-291. 30 42 U.S.C. § 15912. CRS-7 moratoria, and assess the extent to which relevant laws and policies “restrict or impede the development of identified resources and the extent that they affect domestic supply....”31 Bills are often introduced to amend or alter existing prohibitions on OCS development. For example, the Gulf of Mexico Energy Security Act of 2006 was enacted just before adjournment of the 109th Congress as part of H.R. 6111, the omnibus Tax Relief and Health Care Act of 2006.32 This measure provides for the oil and gas leasing in an area in the Gulf of Mexico known as “181 Area.” Large portions of this Area are to be offered for oil or gas leasing pursuant to the leasing terms of the OCSLA as soon as practicable after enactment of the act.33 Leasing in this area had been prohibited under P.L. 105-83. Leasing and Development The Secretary of the Interior oversees OCS mineral leasing, with the leasing of tracts and royalty collection performed by the Minerals Management Service (MMS), a bureau of the Department of Interior (DOI).34 In 1978, the OCSLA was significantly amended so as to increase the role of the affected coastal states in the leasing process.35 The amendments also revised the bidding process and leasing procedures, set stricter criteria to guide the DOI environmental review process, and established new safety and environmental standards to govern drilling operations. The OCS leasing process consists of four distinct stages: (1) the five-year planning program,36 (2) the lease sale,37 (3) exploration,38 and (4) development and production.39 The Five-Year Plan. The Secretary of the Interior is required to prepare a five-year leasing plan, subject to annual revisions, that governs any offshore leasing that takes place during the period of plan coverage.4021 43 U.S.C. § 1341(a). 22 See, e.g., P.L. 108-447, §§ 107-109. CRS-5 Outer Continental Shelf.23 Similar language has appeared in every DOI appropriations bill since the legislation for FY1982. In addition to the congressional moratoria, for most of the last 20 years there have been parallel executive branch moratoria on offshore drilling. The first of these was issued by President George H. W. Bush on June 26, 1990. This memorandum, issued pursuant to the authority vested in the President under Section 12(a) of the OCSLA, placed under presidential moratoria those areas already under an appropriations-based moratorium pursuant to P.L. 105-83, the Interior Appropriations legislation in place at that time. That appropriations-based moratorium prohibited “leasing and related activities” in the areas off the coast of California, Oregon, and Washington, and the North Atlantic and certain portions of the eastern Gulf of Mexico. The legislation further prohibited leasing, preleasing, and related activities in the North Aleutian basin, other areas of the eastern Gulf of Mexico, and the Midand South Atlantic. The Presidential moratorium was extended by President Bill Clinton by memorandum dated June 12, 1998. The Gulf of Mexico Energy Security Act of 2006, enacted just before adjournment of the 109th Congress as part of H.R. 6111, the Omnibus Tax Relief and Health Care Act of 2006,24 created a new congressional moratorium over leasing in portions of the OCS that do not depend on annual renewal in appropriations legislation. The 2006 legislation explicitly permits oil and gas leasing in areas of the Gulf of Mexico,25 but also established a new moratorium on preleasing, leasing, and related activity in the eastern Gulf of Mexico through June 30, 2022.26 This moratorium is independent of the annual appropriations-based congressional moratorium, and thus would continue even if Congress decided not to renew the annual appropriations-based moratorium. On July 14, 2008, President George W. Bush issued an executive memorandum that rescinded the executive moratorium on offshore drilling created by the 1990 order of President George H. W. Bush and renewed by President Bill Clinton in 1998. The memorandum revised the language of the previous memorandum so that only areas designated as Marine Sanctuaries are withdrawn from disposition. The withdrawal has no expiration date. The July 14, 2008, memorandum did not have the effect of opening up new areas of the OCS for exploration and production. Both the moratorium on leasing and preleasing in the eastern Gulf of Mexico found in the 2006 Gulf of Mexico Energy Security Act and the appropriations-based moratorium on leasing and preleasing remain in effect, although the appropriations moratorium must be renewed annually. However, if Congress were not to include an appropriations-based moratorium on offshore drilling for FY2009, OCS acreage not protected by other statutory measures 23 P.L. 97-100, § 109. 24 P.L. 109-432. 25 Id. at § 103. 26 P.L. 109-432, § 104(a). CRS-6 could be considered by the Minerals Management Service for leasing, as described infra. Leasing and Development The Secretary of the Interior oversees OCS mineral leasing, with the leasing of tracts and royalty collection performed by the Minerals Management Service (MMS), a bureau of DOI.27 In 1978, the OCSLA was significantly amended so as to increase the role of the affected coastal states in the leasing process.28 The amendments also revised the bidding process and leasing procedures, set stricter criteria to guide the DOI environmental review process, and established new safety and environmental standards to govern drilling operations. The OCS leasing process consists of four distinct stages: (1) the five-year planning program;29 (2) preleasing activity and the lease sale;30 (3) exploration;31 and (4) development and production.32 The Five-Year Plan. The Secretary of the Interior is required to prepare a five-year leasing plan, subject to annual revisions, that governs any offshore leasing that takes place during the period of plan coverage.33 Each five-year plan establishes a schedule of proposed lease sales, providing the timing, size, and general location of the leasing activities. This plan is to be based on multiple considerations, including the Secretary’s determination as to what will best meet national energy 31 Id. 32 P.L. 109-432. 33 Id. at Division C, § 103 . 34 43 U.S.C. §§ 1331(b), 1334; 30 C.F.R. § 250.101. 35 P.L. 95-372. 36 43 U.S.C. § 1344. 37 43 U.S.C. §§ 1337, 1345. 38 43 U.S.C. § 1340. 39 43 U.S.C. § 1351. 40 43 U.S.C. § 1344(a), (e). CRS-8 needs for the five-year period and the extent of potential economic, social, and environmental impacts associated with development.41 During the development of the plan, the Secretary must solicit and consider comments from the Governors of affected states, and at least sixty days prior to publication of the plan in the Federal Register, the plan is to be submitted to the Governor of each affected state for further comments.42 After publication, the Attorney General is also authorized to submit comments regarding potential effects on competition.43 needs for the five-year period and the extent of potential economic, social, and environmental impacts associated with development.34 During the development of the plan, the Secretary must solicit and consider comments from the Governors of affected states, and at least sixty days prior to publication of the plan in the Federal Register, the plan is to be submitted to the Governor of each affected state for further comments.35 After publication, the 27 43 U.S.C. §§ 1331(b), 1334; 30 C.F.R. § 250.101. 28 P.L. 95-372. 29 43 U.S.C. § 1344. 30 43 U.S.C. §§ 1337, 1345. 31 43 U.S.C. § 1340. 32 43 U.S.C. § 1351. 33 43 U.S.C. § 1344(a), (e). 34 Id. 35 “Affected state” is defined in the act as any state: (1) the laws of which are declared, pursuant to section 1333(a)(2) of this title, to be the law of the United States for the portion of the outer Continental Shelf on which such activity is, or is proposed to be, conducted; (2) which is, or is proposed to be, directly connected by transportation facilities to any artificial island or structure referred to in section 1333(a)(1) of this title; (continued...) CRS-7 Attorney General is also authorized to submit comments regarding potential effects on competition.36 Subsequently, at least sixty days prior to its approval, the plan is to be submitted to Congress and the President, along with any received comments and an explanation for the rejection of any comment.4437 Once the leasing plan is approved, tractsareas included in the plan willare to be available for leasing, consistent with the the terms of the plan.4538 The development of the five-year plan is considered a major federal action significantly affecting the quality of the human environment and as such requires preparation of an environmental impact statement (EIS) under the National 41 Id. 42 “Affected state” is defined in the act as any state: (1) the laws of which are declared, pursuant to section 1333(a)(2) of this title, to be the law of the United States for the portion of the outer Continental Shelf on which such activity is, or is proposed to be, conducted; (2) which is, or is proposed to be, directly connected by transportation facilities to any artificial island or structure referred to in section 1333(a)(1) of this title;35 (...continued) (3) which is receiving, or in accordnace [sic] with the proposed activity will receive, oil for processing, refining, or transshipment which was extracted from the outer Continental Shelf and transported directly to such State by means of vessels or by a combination of means including vessels; (4) which is designated by the Secretary as a State in which there is a substantial probability of significant impact on or damage to the coastal, marine, or human environment, or a State in which there will be significant changes in the social, governmental, or economic infrastructure, resulting from the exploration, development, and production of oil and gas anywhere on the outer Continental Shelf; or (5) in which the Secretary finds that because of such activity there is, or will be, a significant risk of serious damage, due to factors such as prevailing winds and currents, to the marine or coastal environment in the event of any oilspill, blowout, or release of oil or gas from vessels, pipelines, or other transshipment facilities.... 43 U.S.C. § 1331(f). 4336 43 U.S.C. § 1344(d). 4437 Id.; see also 30 C.F.R. §§ 256.16-.17. 4538 43 U.S.C. §1344(d). CRS-98 Environmental Policy Act (NEPA).4639 Thus, the NEPA review process complements and informs the preparation of a five-year plan under the OCSLA.4740 The current Five-Year Plan was took effect on July 1, 2007.41 However, in response to calls to expand offshore exploration and production leasing, in July of 2008 MMS took the unprecedented step of initiating a new Five-Year Plan that is expected to commence before the expiration of the previous plan. MMS has published notice and a request for comments in the Federal Register regarding a proposed new Five-Year Plan for mid-2010 to mid-2015 that would replace the existing Plan.42 According to MMS, the notice particularly seeks “comments on areas that are restricted from leasing by Congressional Moratorium but were removed from Presidential Withdrawal on July 14, 2008.”43 Leasing. The lease sale process involves multiple steps as well. Leasing decisions are impacted by a variety of federal laws; however, it is section 8 of the OCSLA and its implementing regulations that establish the mechanics of the leasing process.4844 The process begins when the Director of MMS publishes a call for information and nominations regarding potential lease areas. The Director is authorized to receive and consider these various expressions of interest in lease areas and comments on which areas should receive special concern and analysis.4945 The Director is then to consider all available information and perform environmental analysis under NEPA in crafting both a list of areas recommended for leasing and any proposed lease stipulations.50 This list is submitted to the Secretary of the Interior and, upon the Secretary’s approval, published in the Federal Register and submitted to the Governors of potentially affected states.51 The OCSLA and its regulations authorize the Governor of an affected state and the executive of any local government within an affected state to submit to the Secretary any recommendations concerning the size, time, or location52 of a proposed 46 39 42 U.S.C. § 4332(2)(C). In general, NEPA and its CEQ regulationsthe regulations that govern its administration require various levels of environmental analysis depending on the circumstances and the type of Federalfederal action contemplated. Certain actions that have been determined to have little or no environmental effect are exempted from preparation of NEPA documents entirely and are commonly referred to as “categorical exclusions.” In situations where a categorical exclusion does not apply, an intermediate level of review, an environmental assessment (EA), may be required. If, based on the EA, the agency finds that an action will not have a significant effect on the environment, the agency issues a “finding of no significant impact” (FONSI), thus terminating the NEPA review process. On the other hand, major Federalfederal actions that are found to significantly affect the environment require the preparation of an environmental impact statement (EIS), a document offering detailed analysis of the project as proposed as well as other options, including taking no action at all. NEPA does not direct an agency to choose any particular course of action; the only primary purpose of an EIS is to ensure that environmental consequences are considered. For additional information, see CRS Report RS20621, Overview of NEPA Requirements, by Kristina Alexander. 4740 See Natural Resources Defense Council v. Hodel, 865 F.2d 288, 310 (D.C. Cir.1988). 48 43 U.S.C. § 1337. 49 30 C.F.R. §§ 256.23, 256.25. 50 30 C.F.R. § 256.26. 51 30 C.F.R. § 256.29. 52 It should be noted that the OCSLA establishes certain minimum requirements applicable to these subjects. For instance, lease tracts are, in general, to be limited to 5,760 acres, unless the Secretary determines that a larger area is necessary to comprise a “reasonable economic production unit....” Id. § 1337(b). The law and its implementing regulations also set the range of initial lease terms and baseline conditions for lease renewal. CRS-10 lease sale within sixty days after notice of the lease sale.5341 The Plan is available on MMS’s website at [http://www.mms.gov/offshore/PDFs/ OMMStrategicPlan2007-2012.pdf]. 42 73 Fed. Reg. 45065 (August 1, 2008). 43 Id. 44 43 U.S.C. § 1337. 45 30 C.F.R. §§ 256.23, 256.25. CRS-9 proposed lease stipulations.46 This list is submitted to the Secretary of the Interior and, upon the Secretary’s approval, published in the Federal Register and submitted to the Governors of potentially affected states.47 The OCSLA and its regulations authorize the Governor of an affected state and the executive of any local government within an affected state to submit to the Secretary any recommendations concerning the size, time, or location48 of a proposed lease sale within sixty days after notice of the lease sale.49 The Secretary must accept the Governor’s recommendations (and has discretion to accept a local government executive’s recommendations) if the Secretary determines that the recommendations reasonably balance the national interest and the well-being of the citizens of an affected state.5450 The Director of MMS publishes the approved list of lease sale offerings in the Federal Register (and other publications) at least thirty days prior to the date of the sale.5551 This notice must describe the areas subject to the sale and any stipulations, terms, and conditions of the sale.5652 The bidding is to occur under conditions described in the notice and must be consistent with certain baseline requirements established in the OCSLA.5753 Although the statute establishes base requirements for the competitive bidding process and sets forth a variety possible of bid formats,58 many54 some of these requirements are are subject to significant modification at the discretion of the Secretary.5955 Before the acceptance acceptance of bids, the Attorney General is also authorized to review proposed lease sales to analyze any potential effects on competition, and may subsequently recommend recommend action to the Secretary of the Interior as may be necessary to prevent violation of antitrust laws.6056 The Secretary is not bound by the Attorney General’s recommendation, and likewise, the antitrust review process does not affect private rights of action under antitrust laws or otherwise restrict the powers of the Attorney General or any other federal agency under other law.61 Assuming compliance with these bidding requirements, the Secretary may grant a lease to the highest bidder, although deviation from this standard may occur under a variety of circumstances.62 In addition, the OCSLA prescribes many minimum conditions that all leases must contain. The statute supplies generally applicable minimum royalty or net 53 43 U.S.C. § 1345(a); see also 30 C.F.R. § 256.31. 54 43 U.S.C. § 1345(c). 55 43 U.S.C. § 1337(l). 56 30 C.F.R. § 256.32(1). 57 43 U.S.C. § 1337. 5846 30 C.F.R. § 256.26. 47 30 C.F.R. § 256.29. 48 It should be noted that the OCSLA establishes certain minimum requirements applicable to these subjects. For instance, lease tracts are, in general, to be limited to 5,760 acres, unless the Secretary determines that a larger area is necessary to comprise a “reasonable economic production unit....” Id. § 1337(b). The law and its implementing regulations also set the range of initial lease terms and baseline conditions for lease renewal. 49 43 U.S.C. § 1345(a); see also 30 C.F.R. § 256.31. 50 43 U.S.C. § 1345(c). 51 43 U.S.C. § 1337(l). 52 30 C.F.R. § 256.32(1). 53 43 U.S.C. § 1337. 54 43 U.S.C § 1337(a)(1)(A)-(H). For example, bids may be on the basis of “cash bonus bid with a royalty at not less than 12 ½ per centum fixed by the Secretary in amount or value of the production saved, removed, or sold ....” See also 30 C.F.R. §§ 256.35 - 256.47. 59 43 U.S.C 1337(a)(1)-(3), (8)-(9). It should be noted that the OCSLA also provides for a legislative veto of the bidding system selected by the Secretary and that a similar provision was declared unconstitutional by the U.S. Supreme Court. See Immigration and Naturalization Service v. Chadha, 462 U.S. 919 (1983). 60 43 U.S.C. § 1337(c); 30 C.F.R. § 256.47(d). 61 43 U.S.C § 1337(c), (f). 62 Restrictions include a statutory prohibition on issuance of a new lease to a bidder that is not meeting applicable due diligence requirements with respect to the bidder’s other leases. See 43 U.S.C § 1337(d). CRS-11 55 43 U.S.C 1337(a)(1)-(3), (8)-(9). 56 43 U.S.C. § 1337(c); 30 C.F.R. § 256.47(d). CRS-10 rights of action under antitrust laws or otherwise restrict the powers of the Attorney General or any other federal agency under other law.57 Assuming compliance with these bidding requirements, the Secretary may grant a lease to the highest bidder, although deviation from this standard may occur under some circumstances.58 In addition, the OCSLA prescribes many minimum conditions that all lease instruments must contain. The statute supplies generally applicable minimum royalty or net profit share rates, as necessitated by the bidding format adopted, subject, under certain conditions, to Secretarial modification. Indeed, severalSeveral provisions authorize royalty royalty reductions or suspensions. Royalty rates or net profit shares may be reduced below below the general minimums or eliminated to promote increased production.63 For leases 59 For leases located in “the Western and Central Planning Areas of the Gulf of Mexico and the the portion of the Eastern Planning Area of the Gulf of Mexico encompassing whole lease blocks lying west of 87 degrees, 30 minutes West longitude and in the Planning Areas offshore Alaska,” a broader authority is also provided, allowing the Secretary, with the lessee’s consent, to make “other modifications” to royalty or profit share requirements to encourage increased production.64 Additionally, the 2005 Energy Policy Act also authorizes royalty relief in the form of reduced payments if 44 cents for every dollar owed to the federal government is paid to the state of Louisiana instead.65 The lease generating these royalty payments does not necessarily have to be located adjacent to Louisiana waters. Indeed, all OCS leases are covered by the provision. However, in order to take advantage of the reduction, the lessee must have had “an ownership interest in State of Louisiana leases SL10087, SL10088 or SL10187, or ownership interests in the production or proceeds therefrom, as established by assignment, contract or otherwise” as of August 18, 1990.66 Royalties may also be suspended60 Royalties may also be suspended under certain conditions by MMS pursuant to the Outer Continental Shelf Deep Water Royalty Relief Act, discussed infra. The OCSLA also generally requires successful bidders to furnish a variety of up-front upfront payments and performance bonds upon being granted a lease.6761 Additional provisions require that leases provide that certain amounts of production be sold to small or independent refiners. Further, leases must contain the conditions stated in the sale notice and provide for suspension or cancellation of the lease pursuant to section 1334.68in certain circumstances.62 Finally, the law indicates that a lease entitles the lessee to explore, develop and produce oil and gas, conditioned on applicable due diligence requirements and the approval of a development and production plan, discussed below.6963 Exploration. Exploration for oil and gas pursuant to an OCSLA lease must comply with an approved exploration plan.7064 Detailed information and analysis must accompany the submission of an exploration plan, and, upon receipt of a complete proposed plan, the relevant MMS Regional Supervisor is required to submit the plan 63 Id. § 1337(a)(3). 64 43 U.S.C. § 1337(a)(3)(B) 65 P.L. 109-58 (codified at 43 U.S.C. § 1334 note). 66 Id. 6757 43 U.S.C § 1337(c), (f). 58 Restrictions include a statutory prohibition on issuance of a new lease to a bidder that is not meeting applicable due diligence requirements with respect to the bidder’s other leases. See 43 U.S.C § 1337(d). 59 Id. § 1337(a)(3). 60 43 U.S.C. § 1337(a)(3)(B). 61 43 U.S.C § 1337(a)(7); 30 C.F.R. §§ 256.52 - 256.59. 68 43 U.S.C § 1337(b). Leases may also be cancelled at any time if obtained by fraud or misrepresentation. 43 U.S.C § 1337(o). 6962 43 U.S.C § 1337. 63 43 U.S.C § 1337(b)(4). 7064 43 U.S.C § 1340(b), (c). CRS-1211 to the Governor of an affected state and the state’s Coastal Zone Management agency.7165 Under the federal Coastal Zone Management Act (CZMA), federal actions and federally federally permitted projects, evenincluding those in federal waters, must be submitted for state review.7266 The purpose of this review is to ensure consistency with state Coastal Zone Management Programs as contemplated by the federal law. When a state determines that a lessee’s plan is inconsistent with its Coastal Zone Management Program, the lessee must either reform its plan to accommodate those objections and resubmit it for MMS and state approval or succeed in appealing the state’s determination to the Secretary of Commerce.7367 Simultaneously, the MMS Regional Supervisor is to analyze the environmental impacts of the proposed exploration activities under NEPA; however, it should be noted that regulations prescribe that MMS complete its action on the plan review within thirty days. Hence, extensive environmental review at this stage may be constrained or rely heavily upon previously prepared NEPA documents.7468 If the Regional Supervisor disapproves the proposed exploration plan, the lessee is entitled to a list of necessary modifications and may resubmit the plan to address those issues.7569 Once a plan has been approved, drilling associated with exploration remains subject to the relevant MMS District Supervisor’s approval of an Application for a Permit to Drill, which involves analysis of even more specific drilling plans. Development and Production. While exploration often will rinvolvewill regularly involve drilling wells, the scale of such activities will significantly increase during the development and production phase. Accordingly, additional regulatory review and environmental analysis are required by the OCSLA before this stage begins.7670 Operators are required to submit a Development and Production Plan for areas where significant development has not occurred before77before71 or a less extensive Development Operations Coordination Document for those areas, such as certain portions of the Western Gulf of Mexico, where significant activities have already taken place.7872 The information required to accompany submission of these documents is similar to that required at the exploration phase, but must address the larger scale of operations.7973 As with the processes outlined above, the submission of these documents complements the Departmentdepartment’s and MMS’s environmental analysis under NEPA. As As with the exploration plan review process, it may not always be necessary that a new EIS be preparedto prepare a new EIS at this stage, and environmental analysis may be tied to 71 previously 65 30 C.F.R. §§ 250.226, 250.227, 250.232, 250.235. 7266 16 U.S.C. § 1456(c). 7367 30 C.F.R. § 250.235. 7468 30 C.F.R. § 250.232(c). 7569 30 C.F.R. §§ 250.231 - 250.233. 7670 43 U.S.C. § 1351. 7771 30 C.F.R. § 250.201. 7872 Id. 7973 30 C.F.R. §§ 250.24 - 250.262. CRS-13 previously 12 prepared NEPA documents.8074 In addition, affected states are allowed, under the OCSLA, to submit comments on proposed Development and Production Plans and to review these plans for consistency with state Coastal Zone Management Programs.8175 Additionally, if the drilling project involves “non-conventional production or completion technology, regardless of water depth” applicants must also submit a Deepwater Operations Plan (DWOP) and a Conceptual Plan.8276 These additional documents allow MMS to adequately review the engineering, safety, and environmental impacts associated with these technologies.8377 As with the exploration stage, actual drilling cannot take place withoutrequires approval of an Application for Permit to Drill (APD).8478 An APD focuses on the specifics of particular wells and associated machinery. Thus, an application must include a plat indicating the well’s proposed location, information regarding the various design elements of the proposed well, and a drilling prognosis, among other things.8579 Lease Suspension and Cancellation. The OCSLA authorizes the Secretary of the Interior to promulgate regulations on lease suspension and cancellation.8680 The Secretary’s discretion over the use of these authorities is specifically limited to a set number of circumstances established by the OCSLA. These authorities are described below. Suspension of otherwise authorized OCS activities may generally occur at the request of a lessee or at the direction of the relevant MMS Regional Supervisor, given appropriate justification.8781 Under the statute, a lease may be suspended (1) when it is in the national interest,; (2) to facilitate proper development of a lease,; (3) to allow for the construction or negotiation for use of transportation facilities,; or (4) when there is “a threat of serious, irreparable, or immediate harm or damage to life (including fish and other aquatic life), to property, to any mineral deposits (in areas leased or not leased), or to the marine, coastal, or human environment....”8882 The regulations also indicate that leases may be suspended for other reasons, including (1) when necessary to comply with judicial decrees,; (2) to allow for the installation of safety or environmental protection equipment,; (3) to carry out NEPA or other environmental review requirements,; or (4) to allow for “inordinate delays 8074 The regulations indicate that “at least once in each planning area (other than the western and central Gulf of Mexico planning areas) we [MMS] will prepare an environmental impact statement (EIS) ....” 30 C.F.R. § 250.269. 8175 30 C.F.R. § 250.267. 8276 30 C.F.R. §§ 250.286, 250.287. 8377 30 C.F.R.§§ 250.289, 250.292. 8478 30 C.F.R. §§ 250.410 - 250.469. 8579 30 C.F.R. § 250.411. 8680 43 U.S.C. § 1334; see also 30 C.F.R. §§ 250.168 - 250.185. 8781 30 C.F.R. §§ 250.168, 250.171-250.175. 8882 43 U.S.C.§ 1334(a)(1). CRS-1413 encountered in obtaining required permits or consents....”8983 Whenever suspension occurs, the OCSLA generally requires that the term of an affected lease or permit be extended by a length of time equal to the period of suspension.9084 This extension requirement does not apply when the suspension results from a lessee’s “gross negligence or willful violation of such lease or permit, or of regulations issued with respect to such lease or permit....”91 After85 If a suspension period of, in general,reaches five years,9286 the Secretary may cancel a lease upon holding a hearing and finding that (1) continued activity pursuant to a lease or permit would “probably cause serious harm or damage to life (including fish and and other aquatic life), to property, to any mineral (in areas leased or not leased), to the the national security or defense, or to the marine, coastal, or human environment”; (2) “the threat of harm or damage will not disappear or decrease to an acceptable extent within a reasonable period of time”; and (3) “the advantages of cancellation outweigh the advantages of continuing such lease or permit in force....”9387 Upon cancellation, the OCSLA entitles lessees to certain damages. The statute calculates damages at the lesser of (1) the fair value of the canceled rights on the date of cancellation94cancellation88 or (2) the excess of the consideration paid for the lease, plus all of the lessee’s exploration- or development-related expenditures, plus interest, over the lessee’s revenues from the lease.9589 The OCSLA also indicates that the “continuance in effect” of any lease is subject to a lessee’s compliance with the regulations issued pursuant to the OCSLA, and failure to comply with the provisions of the OCSLA, an applicable lease, or the regulations may authorize the Secretary to cancel a lease as well.9690 Under these circumstances, a nonproducing lease can be canceled if the Secretary sends notice by registered mail to the lease owner and the noncompliance with the statute lease or 8983 30 C.F.R. § 250.173 - 250.175. 9084 43 U.S.C.§ 1334(a)(1). 9185 Id. 92 86 43 U.S.C. § 1334(a)(2)(B). The requisite suspension period may be reduced upon the request of the lessee. 43 U.S.C. § 1334(a)(2)(B). 93 87 43 U.S.C. § 1334(a)(2)(A)(i)-(iii). For regulations implementing the cancellation provisions, see 30 C.F.R. §§ 250.180 - 250.185. 9488 The statute requires “fair value” to take account of “anticipated revenues from the lease and anticipated costs, including costs of compliance with all applicable regulations and operating orders, liability for cleanup costs or damages, or both, in the case of an oilspill, and all other costs reasonably anticipated on the lease ....” 43 U.S.C. § 1334(a)(2)(C). 9589 Exceptions from this method of calculation are carved out for leases issued before September 18, 1978, and for joint leases that are canceled due to the failure of one or more partners to exercise due diligence. 43 U.S.C. § 1334(a)(2)(C)(ii)(I), (II); see also 30 C.F.R. §§ 250.184 - 250.185. 9690 43 U.S.C. § 1334(b). CRS-1514 regulations continues for a period of thirty30 days after the mailing.9791 Similar noncompliance by the owner of a producing lease can result in cancellation after an appropriate proceeding in any United States district court with jurisdiction as provided for under the OCSLA.9892 Legal Challenges to Offshore Leasing Multiple statutes govern aspects of offshore oil and gas development, and therefore, may give rise to legal challenges. Certainly, violations of the Clean Water Act,99Marine Mammal Protection Act,93 Endangered Species Act,10094 and other environmental laws have provided mechanisms for challenging actions associated with offshore oil and gas production in the past.10195 Of primary interest here, however, are legal challenges to agency action with respect to the planning, leasing, exploration, and development phases phases under the procedures mandated by the OCSLA itself and the related environmental environmental review required by the National Environmental Policy Act. An overview of the relevant case law follows. Suits Under the Outer Continental Shelf Lands Act. The OCSLA provides for judicial review of agency action alleged to be in violation of federal law, including the OCSLA, its implementing regulations, and the terms of any permit or lease.10296 The following paragraphs provide an overview of the existing case law and address the limitations applicable to relief at each phase of the leasing and development process. Jurisdiction to review agency actions taken in approving the five-year plan is vested in the U.S. Court of Appeals for the D.C. Circuit, subject to appellate review by writ of certiorari to the U.S. Supreme Court.103 It appears that only three 97 A few challenges to the five-year plan plans have been brought to courtin federal courts. The first, California ex. rel. Brown v. Watt,104 98 involved a variety of challenges to the 1980 — -1985 plan, and, while the court ultimately found that the Secretary had failed to comply with certain procedural procedural requirements in making determinations, the court established a relatively deferential deferential standard of review, which it has continued to apply in later challenges. When When reviewing “findings of ascertainable fact made by the Secretary,” the court will 97 43 U.S.C. § 1334(c). 98 43 U.S.C. § 1334(d). 99 33 U.S.C. §§ 1251-1387. 100 16 U.S.C. §§ 1531-1544. 101 require the Secretary’s decisions to be supported by “substantial evidence.”99 However, the court noted that many of the decisions required in the formulation of 91 43 U.S.C. § 1334(c). 92 43 U.S.C. § 1334(d). 93 16 U.S.C. §§1361- 1423. 94 16 U.S.C. §§ 1531-1544. 95 Village of Akutan v. Hodel, 869 F.2d 1185 (9th Cir.1988); Village of False Pass v. Clark, 733 F.2d 605 (9th Cir.1984); North Slope Borough v. Andrus, 642 F.2d 589 (D.C. Cir.1980); Conservation Law Foundation v. Andrus, 623 F.2d 712 (1st Cir.1979). 102 96 43 U.S.C. § 1349. 10397 43 U.S.C. § 1349(c). 104 668 F.2d 1290 (D.C. Cir.1981). CRS-16 require the Secretary’s decisions to be supported by “substantial evidence.”105 However, the court noted that many of the decisions required in the formulation of98 668 F.2d 1290 (D.C. Cir.1981). 99 Watt, 668 F.2d at 1302; see also 43 U.S.C. § 1349(c)(6). CRS-15 the five-year plan will involve the determination of policy in the face of disputed facts, and that such determinations should be subject to a less searching standard. In such instances, a court will examine agency action and determine whether “the decision is based on a consideration of the relevant factors and whether there has been a clear error of judgment.”106100 The standards for review outlined in Watt have been upheld in subsequent litigation related to the five-year plan.107101 In these subsequent cases, the Court of Appeals for the D.C. Circuit applied a deferential standard in reviewing the Secretary’s decisions, particularly in reviewing the Secretary’s environmental impact determinations, such that the Secretary could perform environmental analysis using “any methodology so long as it is not irrational.”108102 Further, these cases indicate that the Secretary is vested with significant discretion in determining which areas are to be offered for leasing and which areas will not. Thus, while the Secretary must receive and consider comments related to excluding areas from leasing, the court has clearly stated that the Secretary need only identify the legal or factual basis for leasing determinations at this stage and explain those determinations; more. More searching judicial review of the Secretary’s analysis is not required.109103 Litigation under the OCSLA has also challenged actions taken during the leasing phase. As described above, the OCSLA authorizes states to submit comments comments during the notice of lease sale stage and directs the Secretary to accept a state’s recommendations if they “provide for a reasonable balance between the national national interest and the well-being of the citizens of the affected State.”110104 Courts have have typically applied the deferential “arbitrary and capricious” standard to Secretarythe Secretary’s decisions with respect to these recommendations. According to the cases from the Ninth Circuit Court of Appeals, because the OCSLA does not provide clear guidance as to how balancing of national interest and a state’s considerations is to be performed, agency action will generally be upheld so long as “some consideration of the relevant factors ...” takes place.111105 Cases from the federal courts in Massachusetts, including a decision affirmed by the First Circuit Court of Appeals, have, while embracing the arbitrary and capricious standard, found the Secretary’s 105 Watt, 668 F.2d at 1302; see also 43 U.S.C. § 1349(c)(6). 106 balancing of interests insufficient.106 However, it should be noted that the Massachusetts cases reviewed agency action that was not supported by explicit 100 Watt, 668 F.2d at 1301-1302 (quoting Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416 (1971) (internal quotations omitted)). 107101 See California v. Watt, 712 F.2d 584 (D.C. Cir.1983); Natural Resources Defense Council v. Hodel, 865 F.2d 288 (D.C. Cir. 1988). 108102 California, 715 F.2d at 96 (internal quotations omitted). 109103 Hodel, 865 F.2d at 305. 110104 43 U.S.C. § 1345(d). 111105 California v. Watt, 683 F.2d 1253, 1269 (9th Cir.1982); see also Tribal Village of Akutan v. Hodel, 869 F.2d 1185 (9th Cir.1988). CRS-17 balancing of interests insufficient.112 However, it should be noted that the Massachusetts cases reviewed agency action that was not supported by explicit 106 Conservation Law Foundation v. Watt, 560 F.Supp. 561 (D.Mass. 1983), aff’d sub nom. Massachusetts v. Watt, 716 F.2d 946 (1st Cir. 1983); Massachusetts v. Clark, 594 F.Supp. 1373 (D.Mass. 1984). CRS-16 analysis of the sort challenged in the Ninth Circuit. Thus, it is possible that, given a more thorough record of the Secretary’s decision, these courts may afford more significant deference to the Secretary’s determination. Apart from matters relating primarily to the authority of the Secretary to authorize the various stages of leasing, recent litigation has focused on the authority of MMS to require royalty payments on certain offshore leases allegedly subject to mandatory royalty relief provisions. In Kerr-McGee Oil & Gas Corp. v. Burton, the plaintiff, an oil and gas company operating offshore wells in the Gulf of Mexico pursuant to federal leases, is challengingchallenged actions by the Departmentdepartment to collect royalties royalties on deepwater oil and gas production.113107 The plaintiff alleged the Department department does not have authority to assess royalties based on an interpretation of the 1995 Outer Continental Shelf Deepwater Royalty Relief Act (DWRRA) that the act requires royalty-free production until a statutorily prescribed threshold volume of oil or gas production has been reached, and does not permit a price-based threshold for this royalty relief.114108 The DWRRA separates leases into three categories based on date of issuance. These categories are (1) leases in existence on November 28, 1995,; (2) leases issued after November 28, 2000,; and (3) leases issued in between those periods, during the first five years after the act’s enactment. The third category of leases is the current source ofsource of current controversy. According to Kerr-McGee, its leases, which were issued during the initial five year period after the DWRRA’s enactment, are subject to different legal requirements than those applicable to the other two categories. KerrMcGee arguesargued that the Departmentdepartment has a nondiscretionary duty under the DWRRA to provide royalty relief on its deepwater leases, and that the statute does not provide aan exception to this obligation based on any preset price threshold. To the extent any price threshold has been included in these leases, Kerr-McGee argued that such provisions are contrary to DOI’s statutory authority and unenforceable. Section 304 of the DWRRA, which addresses deepwater leases115leases109 issued within five years after the DWRRA’s enactment, directs that such leases use the bidding system authorized in section 8(a)(1)(H) of the OCSLA, as amended by the DWRRA. Section 304 of the DWRRA also stipulates that leases issued during the five-year post-enactment time frame must provide for royalty suspension on the basis of volume. Specifically, section 304 states 112 Conservation Law Foundation v. Watt, 560 F.Supp. 561 (D.Mass. 1983), aff’d sub nom. Massachusetts v. Watt, 716 F.2d 946 (1st Cir.1983); Massachusetts v. Clark, 594 F.Supp. 1373 (D.Mass. 1984). 113: [A]ny lease sale within five years of the date of enactment of this title, shall use the bidding system authorized in section 8(a)(1)(H) of the Outer Continental Shelf Lands Act, as amended by this title, except that the suspension of royalties shall be set at a volume of not less than the following: 107 Kerr-McGee Oil & Gas Corp. v. Burton, No. CV06-0439 LC (W.D. La. March 17, 2006). 114108 P.L. 104-58. 115109 This term refers to “tracts located in water depths of 200 meters or greater in the Western and Central Planning Area of the Gulf of Mexico, including that portion of the Eastern Planning Area of the Gulf of Mexico encompassing whole lease blocks lying west of 87 degrees, 30 minutes West longitude ....” 43 U.S.C. § 1337 note. CRS-18 [A]ny lease sale within five years of the date of enactment of this title, shall use the bidding system authorized in section 8(a)(1)(H) of the Outer Continental Shelf Lands Act, as amended by this title, except that the suspension of royalties shall be set at a volume of not less than the following:17 (1) 17.5 million barrels of oil equivalent for leases in water depths of 200 to 400 meters; (2) 52.5 million barrels of oil equivalent for leases in 400 to 800 meters of water; and (3) 87.5 million barrels of oil equivalent for leases in water depths greater than 800 meters.116110 It is possible to interpret this provision as authorizing leases issued during the five-year period to contain only royalty suspension provisions that are based on production volume with no allowance at all for a price-related threshold in addition. Such an intent might be gleaned from the language of the quoted section alone; indeed, in this provision, Congress provides for a specific royalty suspension method and does not clearly authorize the Secretary to alter or supplement it. Kerr-McGee’s challenge to the Secretary’s authority to impose price-based thresholds on royalty suspension was based on this interpretation of the statutory language above. The U.S. District Court for the Western District of Louisiana agreed with KerrMcGee’s interpretation of the language discussed above. The court found that the DWRRA allowed only for volumetric thresholds on royalty suspension for leases issued between 1996 and 2000, and that the Secretary did not have authority under the DWRRA to attach price-based thresholds to royalty suspension for those leases.117111 The U.S. government has filed notice of appeal of this decision, and so this decision may be reversedappealed this decision to the U.S. Court of Appeals for the Fifth Circuit, and that appeal is pending. Suits Under the National Environmental Policy Act. In the context of proposed OCS development, NEPA generally requires publication of notice of an intent to prepare an Environmental Impact Statement (EIS), acceptance of comments on what should be addressed in the EIS, agency preparation of a draft EIS, a comment period on the draft EIS, and publication of a final EIS addressing all comments at each stage of the leasing process where government action will significantly affect the environment.118112 As described above, NEPA figures heavily in the OCS planning and leasing process and requires various levels of environmental analysis prior to agency decisions at each phase in the leasing and development process.119113 Lawsuits brought under NEPA are thus indirect challenges to agency decisions in that they typically question the adequacy of the environmental analysis performed prior to a final decision. 116 P.L. 104-58. 117 CITE. 118 40 C.F.R. §§ 1501.7, 1503.1, 1503.4, 1506.10. 119 42 U.S.C. § 4332. CRS-19 There has only been one NEPA-based challenge to a five-year plan, Natural Resources Defense Council v. Hodel.120114 The plaintiff challenged the adequacy of the alternatives examined in the EIS and the level of consideration paid to cumulative effects of offshore drilling activities. The court held that not every possible alternative needed to be examined, and that the determination as to adequacy was 110 P.L. 104-58. 111 Kerr-McGee Oil & Gas Corp. v. Burton, slip. op. at 8-9. 112 40 C.F.R. §§ 1501.7, 1503.1, 1503.4, 1506.10. 113 42 U.S.C. § 4332. 114 Natural Resources Defense Council, Inc. v. Hodel, 865 F.2d 288 (D.C. Cir. 1988). CRS-18 subject to the “rule of reason.”115 subject to the “rule of reason.”121 This standard appears to afford some level of deference to the Secretary, and his choice of alternatives was found to be sufficient by the court in this instance.122116 However, without significant explanation of the standard of review to be applied, the court did findfound that the Secretary’s failure to analyze certain cumulative impacts was a violation of NEPA.123117 Thus, the Secretary was required to include this analysis, although final decisions based on that analysis remained subject to the Secretary’s discretion, with review only under the arbitrary and capricious standard.124118 As mentioned above, NEPA plays a role in the leasing phase as well. MMS often uses NEPA and its tiering option to evaluate lease sales.125119 The NEPA procedures and standard of review remain the same at this phase; however, due to the structure of the OCSLA process, more specific information is generally required.126120 Still, courts are deferential at the lease sale phase. In challenges to the adequacy of environmental review, courts have stressed that inaccuracies and more stringent NEPA analysis will be available at later phases.127121 Thus, because there will be an opportunity to cure any defects in the analysis as the OCSLA process continues, challenges under NEPA at this phase are often unsuccessful.128122 It also appears possible to challenge exploration and development plans under NEPA, although a search of the relevant case law has revealed only one NEPA-based challenge to a development and production plan and no challenges to exploration plans.129. In Edwardsen v. U.S. Department of the Interior, the Ninth Circuit Court of of Appeals applied the typical “rule of reason” to determine if the EIS adequately addressed the probable environmental consequences of the development and production plan, and held that, despite certain omissions in the analysis and despite an MMS decision to tier its NEPA analysis to an EIS prepared for a similar lease 120 Natural Resources Defense Council, Inc. v. Hodel, 865 F.2d 288 (D.C. Cir. 1988). 121 Id. at 294. 122 Id. at 296. 123 Id. at 297-300. 124 sale, the requirements of NEPA were satisfied.123 Thus, while additional analysis was required to account for the greater specificity of the plans and to accommodate the “hard look” at environmental impacts NEPA mandates, the reasonableness standard applied to what must be examined in an EIS did not allow for a successful challenge to agency action. 115 Id. at 294. 116 Id. at 296. 117 Id. at 297-300. 118 See California ex. rel. Brown v. Watt, 668 F.2d 1290, 1301-1302 (D.C. Cir.1981). 125119 See 30 C.F.R. § 256.26(b); 40 C.F.R. § 1508.28. 126120 Tribal Village of Akutan v. Hodel, 869 F.2d 1185, 1191 (9th Cir.1988). 127121 Id. at 1192; Alaska v. Andrus, 580 F.2d 465, 473 (D.C. Cir. 1978); Village of False Pass v. Clark, 733 F.2d 605, 612-16 (9th Cir.1984); North Slope Borough v. Andrus, 642 F.2d 589, 594-905 (D.C. Cir.1980). 128122 But see Conservation Law Foundation v. Clark, 560 F.Supp. 561 (D. Mass. 1983). 129123 Edwardsen v. U.S. Department foof the Interior, 268 F.3d 781, 784-790 (9th Cir. 2001). CRS-19 Appendix. State Laws That Ban or Regulate Offshore Resource Development Table 1. State Laws That Ban or Regulate Offshore Resource Development: Policy and Statutes State Policy Statutes (9th Cir. 2001). CRS-20 sale, the requirements of NEPA were satisfied.130 Thus, while additional analysis was required to account for the greater specificity of the plans and to accommodate the “hard look” at environmental impacts NEPA mandates, the reasonableness standard applied to what must be examined in an EIS did not allow for a successful challenge to agency action. 130 Id. at 784-790. CRS-21 Appendix. Table 1. State Laws That Ban or Regulate Offshore Mineral Development State Policy AL Drilling is authorized in Alabama’s state waters. The State Lands Division of the Department of Conservation & Land Resources is charged with leasing offshore oil and gas in state waters. In addition, the Alabama State Oil and Gas Board regulates oil and gas production to ensure the conservation and proper development of oil and gas resources. Authorization: Ala. Code §§ 915-18; 9-17-1 et seq.; 40-20-1 et seq. AK The Alaska Department of Natural Resources is responsible for leasing oil and gas on state lands, including offshore areas. Certain areas are specifically designated as off limits to oil and gas leasing, and administrative decisions not to offer leases in offshore areas may further restrictmay further limit access. Ban: Alaska Stat. §§ 38.05.140(f); 38.05.184. Authorization: Alaska Stat. §§ 38.05.131 et seq. CA The State Lands Commission is generally responsible for oil and gas leasing. California issued offshore oil and gas leases in the past, while banning development in multiple areas within state waters at both the statutory and administrative levels. California currently has a general currently has a general ban in place restricting any state agency from issuing issuing new offshore leases, unless the President of the United United States determines that there is a “severe energy supply supply interruption and has ordered distribution of the Strategic Strategic Petroleum Reserve ..., the Governor finds that the energy resources of the sanctuary will contribute significantly to the alleviation of that interruption, and the Legislature subsequently acts to amend...[the law] to allow that extraction.” The ban is limited to areas that are not currently subject to a lease. Ban: Cal. Pub. Res. Code §§ 6871.1.2 (repealed 1994); 6870 (Santa Barbara limitations); 6243 (general ban). CA CT Connecticut does not appear to have laws addressing oil and gas development in state waters. DE The Governor and the Secretary of the Department of Natural Resources and Environmental Control are authorized to lease oil and gas in state waters. Lands “administered by the Department of Natural Resources and Environmental Control” may not be leased by the Secretary. Statutes Authorization: Alaska Stat. §§ 38.05.131 et seq.; 38.05.135 et seq. Ban: Cal. Pub. Res. Code §§ 6871.1.2 (repealed 1994); 6870 (Santa Barbara limitations); 6243 (general ban). Authorization: Cal. Pub. Res. Code §§ 6870 et. seq.; 6240 et seq. Ban: Del. Code Ann. tit. 7 ch. 61 § 6102(e). Authorization: Del. Code. Ann. tit. 7 ch. 61. CRS-2220 State Policy Statutes FL In general, the Department of Natural Resources is vested with the authority to permit oil and gas development on state lands and submerged lands; however, in in 1990 Florida enacted a broad ban on offshore oil and gas development by prohibiting oil and gas drilling structures in a variety of locations, including Florida’s territorial waters. The development ban provides an exception for valid existing rights. Ban: Fla. Stat. Ann. §377.242. GA The State Properties Commission is authorized to issue leases for state -owned oil and gas. The statute does not distinguish between onshore and offshore minerals. Authorization: Ga. Stat. § 5016-43. HI The Board of Land and Natural Resources is authorized to lease oil and gas on state lands, including submerged lands. There would not appear to be a statutory ban in place. Authorization: Hawaii Rev. Stat. §§ 182-1 et seq. LA The state Mineral Board is responsible for leasing oil and gas in Louisiana and its offshore territory. There does not appear to be a statutory ban on oil and gas drilling in offshore areas, although development is Development is limited to areas offered by the Board for leasing. Authorization: La. Rev. Stat. §§ 30:121 et seq. ME The Bureau of Geology and Natural Areas has primary authority over oil and gas development on state lands, including tidal and submerged lands. The Bureau is authorized to issue exploration permits and mineral leases. Authorization: Me. Rev. Stat. tit. 12 §§ 549 et seq. MD The Department of the Environment regulates oil and gas development. The areas underlying Chesapeake Bay, its tributaries, and the Chesapeake Bay Critical Area are unavailable for oil and gas development. Ban: Md. Code, Envt. §14-107. Authorization: Fla. Stat. Ann. §§ 377.01 et seq.; 253.001 et seq. Authorization: Md. Code, Envt. §§ 14-101 et seq. MA The Division of Mineral Resources is charged with administering the leasing of oil and gas on state lands. The law requires a public hearing before any license to explore or lease for extraction is issued for mineral resources located in coastal waters. Further, manyMany of the state’s offshore areas are designated as ocean sanctuaries in in which oil and gas development is prohibited. Authorization: Mass. Gen. Laws Ann. Ch. 21 §§ 54 et seq. Ban: Mass. Gen. Laws Ann. Ch. 132A § 15. CRS-2321 State Policy Statutes MS The Mississippi Major Economic Impact Authority is responsible for administering oil and gas leases on state lands. Offshore oil and gas development is generally permissible. However, specificSpecific areas are not available for leasing. No development may occur in areas north of the coastal barrier islands, except in Blocks 40, 41, 42, 43, 63, 64 and 66 through 98. Further, “surface offshore drilling drilling operations” may not be conducted within one mile of Cat Island. Authorization: Miss. Code. Ann. §§ 29-7-1 et seq. Ban: Miss. Code. Ann. § 29-7-3. NH No statute appears to address offshore oil and gas development. NJ State law authorizes the removal of sand and “other materials” from lands under tidewaters and below the high water mark if approved by the Tidelands Resource Council. Offshore oil and gas development is not expressly addressed. Authorization: N.J. Stat. Ann. §§ 12:3-12-1 et seq. NY Leases and permits for the right to use state -owned submerged lands for navigation, commerce, fishing, bathing, and recreation are authorized for specified submerged areas. General authority for issuing oil and gas leases is vested in the Department of Environmental Conservation. Certain submerged lands underlying specified lakes are excluded from exploration and leasing, but offshore areas would not appear to be subject to a similar ban. Authorization: N.Y. Pub. Lands. Law § 75; N.Y. Envt’l & Conserv. Law §§ 23-0101 et seq. NC State law authorizes the sale or lease of any state -owned mineral underlying the bottoms of any sounds, rivers, creeks, or other waters of the Statestate. The state is authorized to sell, lease, or otherwise dispose of oil and gas “at the request of the Department of Environment and Natural Resources.” Authorization: N.C. Gen. Stat. § 146-8. OR The Department of State Lands is generally responsible for leasing state owned minerals, including oil and gas. Leasing of tidal and submerged lands is governed by separate provisions of law. There would not appear to be a ban in place. Authorization: Or. Rev. Stat. §§ 274.705 et seq.; 273.551 (for submerged lands seaward more than 10 miles easterly of the 124th West Meridian). RI The Coastal Resources Management Council is charged with identifying, evaluating, and determining which uses are appropriate for the state’s coastal resources and submerged lands. Authorization: R.I. Gen. Laws. §§ 46-23-1 et seq. CRS-2422 State Policy Statutes SC The stateState Budget and Control Board is authorized to “negotiate for leases of oil, gas and other mineral rights upon all of the lands and waters of the State, including offshore marginal and submerged lands.” Authorization: S.C. Code. Ann. §§ 10-9-10 et seq. TX The School Land Board is authorized to lease those portions of the Gulf of Mexico under the state’s jurisdiction for oil and gas development. Authorization: Tex. Nat. Res. Code §§ 52.011 et seq. VA The Marine Resources Commission is authorized to grant easements or to lease “the beds of the waters of the Commonwealth outside of the Baylor Survey” for oil and gas development. Authorization: Va. Code Ann. § 28.2-1208. WA In general, the Department of Natural Resources is responsible for mineral development on state lands. State law prohibits leasing of tidal or submerged lands “extending from mean high tide seaward three miles along the Washington coast from Cape Flattery south to Cape Disappointment, nor in Grays Harbor, Willapa Bay, and the Columbia river downstream from the Longview bridge, for purposes of oil or gas exploration, development, or production.” Ban: Wash. Rev. Code Ann. §§ 43.143.005 et seq.