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Offshore Oil and Gas Development: Legal Framework

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Offshore Oil and Gas Development: Legal Framework

December 30, 2015March 10, 2017 (RL33404)
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Contents

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-mile area extending from their coasts. The federal government and its comprehensive regulatory regime govern those minerals located under 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 exploration, leasing, and ultimate development. Regulations run the gamut from health, safety, resource conservation, and environmental standards to requirements for production based royalties and, in some cases, royalty relief and other development incentives.

In 2008, both the President and the 110th Congress removed previously existing moratoria on offshore leasing on many areas of the outer continental shelf. As of the date of this report, Congress has not reinstated the appropriations-based moratoria that were not renewed by the 110th Congress. Other recent legislative and regulatory activity suggests an increased willingness to allow offshore drilling in the U.S. Outer Continental Shelf. In 2006, Congress passed a measure that would allow new offshore drilling in the Gulf of Mexico. Areas of the North Aleutian Basin off the coast of Alaska have also been made available for leasing by executive order. Most recently, the five-year plan for offshore leasing for 2012-2017 adopted by the Bureau of Ocean Energy Management (BOEM) scheduled 16 more lease sales in the Gulf of Mexico and off the coast of Alaska, but did not schedule new lease sales in other areas. With the introduction of S. 2011 and S. 1276, which would open new offshore areas to leasing and amend other aspects of the offshore leasing program, the 114th Congress has also shown an interest in this area.

The five-year program for offshore leasing for 2017-2022 adopted by the Bureau of Ocean Energy Management focuses only on new exploration and production in the Gulf of Mexico and the Cook Inlet off the coast of Alaska. However, the 114th and 115th Congresses have shown interest in opening new offshore areas to leasing and amending other aspects of the offshore leasing program. Congress and the current Administration may seek to alter the scope of offshore oil and gas exploration and production contemplated by the 2017-2022 five-year program, either administratively or via new legislation.

In addition to 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.


Offshore Oil and Gas Development: Legal Framework

The development of offshore oil, gas, and other mineral resources in the United States is impactedshaped 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 U.S. 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 report 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 these legal regimes. Also included is an outline of recent changes to the authorities regulating offshore development, as well as a discussion of recent executive action and legislative proposals concerning offshore oil and natural gas exploration and production.

Ocean Resource Jurisdiction

Under the United Nations Convention on the Law of the Sea,1 coastal nations are entitled to exercise varying levels of authority over a series of adjacent offshore zones. Nations may claim a 12-nautical-mile territorial sea, over which they may exercise rights comparable to, in most significant respects, sovereignty. An 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, 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 assert 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.2

The EEZ extends 200 nautical miles from the baseline from which a nation's territorial sea is measured (usually near the coastline).3 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."34 In general, however, under UNCLOS, a nation's continental shelf cannot extend beyond 350 nautical miles from its recognized coastline regardless of submarine geology.45 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.5

6

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 that are virtually identical to those described in the treaty.67 In a series of related cases long before UNCLOS, the U.S. Supreme Court confirmed federal control of these offshore areas.78 Federal statutes also 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.... "8"9 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 farther 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 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),910 coastal states are generally entitled to an area extending three geographical miles1011 from their officially recognized coast (or baseline).1112 In order to accommodate the claims of certain states, the SLA provides for an extended three-marine-league1213 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."1314 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-league limit; other Gulf coast states were unsuccessful in their challenges.14

15

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.... "15"16 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 simply grant leasing authority to a state agency 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 state statutes and regulations 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, the states decide which offshore areas under their jurisdiction will be opened for development.

Federal Resources

The primary federal law governing development of oil and gas in federal waters is the Outer Continental Shelf Lands Act (OCSLA).1617 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.... "17"18 To effectuate this purpose, the OCSLA extends application of federal laws to certain structures and devices located on the OCS;1819 provides that the law of adjacent states will apply to the OCS when it does not conflict with federal law;1920 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.2021 The OCSLA thus provides comprehensive regulation of the development of OCS oil and gas resources.

Federal Offshore Energy Development Moratoriums

In general, the OCSLA requires the federal government to prepare, revise, and maintain an oil and gas leasing program. However, at various times some offshore areas have been withdrawn from disposition under the OCSLA. These withdrawals have usually fallen under two broad categories of moratoria applicable to OCS oil and gas leasing: those imposed by the President under authority granted by the OCSLA,2122 and those imposed directly by Congress, which have most often taken the form of limitations on the use of appropriated funds.22

23

Appropriations-based congressional moratoria first appeared in the appropriations legislation for FY1982. The language of the appropriations legislation barred the expenditure of funds by the Department of the Interior (DOI) for leasing and related activities in certain areas in the OCS.2324 Similar language appeared in every DOI appropriations bill through FY2008. However, starting with FY2009, Congress has not included this language in appropriations legislation. As a result, the Bureau of Ocean Energy Management (BOEM), the agency within the Department of the Interior that administers and regulates the OCS oil and gas leasing program, is free to use appropriated funds to fund all leasing, preleasing, and related activities in any OCS areas not withdrawn by other legislation or by executive order.2425 Language used in the legislation that funds DOI in the future will determine whether, and in what form, budget-based restrictions on OCS leasing might return.

In addition to the congressional moratoria, for most of the last 20 years there have been moratoria issued by the executive branchSection 12(a) of the OCSLA authorizes the President to issue moratoria on offshore drilling in many areas. The first of thesewithdrawal covering substantial offshore areas was issued by President George H. W. Bush on June 26, 1990.2526 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 Mid- and South Atlantic. The presidential moratorium was extended by President Bill Clinton by memorandum dated June 12, 1998.26

27

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 in 1990 and renewed by President Bill Clinton in 1998.27 The28 President George W. Bush's memorandum revised the language of the previous memorandum so thatto withdraw from disposition only areas designated as marine sanctuaries are withdrawn from disposition. The withdrawal has no expiration date.

President Barack Obama has exercised the authority granted by Section 12(a) of the OCSLA to issue moratoria on exploration and production activities in certain areas off the coast of Alaska. On March 31, 2010, President Obama issued an executive memorandum pursuant to his Section 12(a) authority to "withdraw from disposition by leasing through June 30, 2017, the Bristol Bay area of the North Aleutian Basin in Alaska."2829 This withdrawal was superseded on December 16, 2014, with a broader withdrawal "for a time period without specific expiration the area of the Outer Continental Shelf currently designated by the Bureau of Ocean Energy Management as the North Aleutian Basin Planning Area ... including Bristol Bay."2930 A month later, President Obama once again exercised his authority under Section 12(a) of the OCSLA to withdraw certain areas in the Chukchi and Beaufort Seas off the coast of Alaska.30

31 Finally, on December 16, 2016 President Obama issued two more withdrawals under Section 12(a) of the OCSLA. One of these withdrew from disposition the entirety of the designated Chukchi Sea and Beaufort Sea Planning areas;32 the other withdrew from disposition areas "associated with 26 major canyons and canyon complexes offshore the Atlantic Coast."33

It is important to note that other prohibitions and moratoria on development on exploration and production in certain areas of the OCS exist. For example, the Gulf of Mexico Energy Security Act of 2006, enacted as part of the Omnibus Tax Relief and Health Care Act of 2006,3134 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,3235 but also established a new moratorium on preleasing, leasing, and related activity in the eastern Gulf of Mexico through June 30, 2022.3336 This moratorium is independent of any appropriations-based congressional moratorium, and thus would continue even if Congress reinstated the annual appropriations-based moratorium.

Leasing and Development

In 1978, the OCSLA was significantly amended so as to increase the role of the affected coastal states in the leasing process.3437 The amendments also revised the bidding process and leasing procedures; set stricter criteria to guide the environmental review process; and established new safety and environmental standards to govern drilling operations.

38 The OCS leasing process consists of four distinct stages: (1) the five-year planning program;3539 (2) preleasing activity and the lease sale;3640 (3) exploration;3741 and (4) development and production.3842

The Five-Year Plan

Program

TheSection 18 of the OCSLA directs the Secretary of the Interior is required to prepare a five-year leasing plan, subject to annual revisions,program that governs any offshore leasing that takes place during the period of plan coverage.3943 Each five-year planprogram establishes a schedule of proposed lease sales, providing the timing, size, and general location of the leasing activities. This planprogram is to be based on multiple considerations, including the Secretary's determination as to what will best meet national energy needs for the five-year period and the extent of potential economic, social, and environmental impacts associated with development.40

44

During the development of the planprogram, the Secretary must solicit and consider comments from the governors of affected states, and at least 60 days prior to publication of the planprogram in the Federal Register, the plan is to be submittedSecretary must submit the program to the governor of each affected state for further comments.4145 After publication, the Attorney General is also authorized to submit comments regarding potential effects on competition.4246 Subsequently, at least 60 days prior to its approval, the plan is to be submittedSecretary must submit the program to Congress and the President, along with any received comments and an explanation for the rejection ofthe reasons for rejecting any comment.4347 Once the leasing plan is approved, areas included in the plan are to beprogram is approved by the Secretary, areas covered by the program become available for leasing, consistent with the terms of the plan.44

The development of the five-year planprogram.48 The OCSLA also requires the Secretary to "review the leasing program approved under this section at least once each year" and authorizes the Secretary to "revise and re-approve such program, at any time."49 However, any "significant" revisions must comply with the requirements applicable to the original five year program.50 The development of the five-year program 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 Environmental Policy Act (NEPA).4551 Thus, the NEPA review process complements and informs the preparation of a five-year planprogram under the OCSLA.46

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The current Five-Year Plan took effect on August 27, 2012.47 The Plan "includes fifteen potential lease sales in six planning areas—the Western and Central Gulf of Mexico (GOM), the portion of the Eastern GOM not currently under Congressional moratorium, and the Chukchi Sea, Beaufort Sea and Cook Inlet planning areas offshore Alaska."48 The Planning Areas for the 2012-2017 Five-Year PlanProgram received final approval from the Secretary of the Interior on January 17, 2017.53 The Program schedules 11 potential lease sales, "ten in portions of the three Planning Areas in the Gulf of Mexico not subject to moratorium and one in the Cook Inlet offshore Alaska."54 The Program notes that "[t]hese areas have high resource potential, existing infrastructure and Federal or state leases, and more manageable potential environmental and coastal conflicts with development" than other areas not included in the Program.55 The Planning Areas for the 2017-2022 Five-Year Program, as well as areas restricted for leasing activity under executive or congressional moratoria and areas BOEM deemed to have "low resource potential,"as of November 2016,56 are depicted in FigureFigure 1 and Figure 2 below.

Figure 1. OCS Lower 48 States Planning Areas

Figure 1. 2012-2017 Five-Year Plan Planning Areas: Lower 48 States

Source: Bureau of Ocean Energy Management, httphttps://www.boem.gov/2017-2022-OCS-Oil-and-Gas-Leasing-PFP/.

Figure 2. OCS Alaska Planning Areas Source: Bureau of Ocean Energy Management, https://www.boem.gov/2017-2022-OCS-Oil-and-Gas-Leasing-PFP/. ://www.boem.gov/uploadedFiles/BOEM/Oil_and_Gas_Energy_Program/Leasing/Five_Year_Program/2012-2017/Program_Area_Maps/Lower%2048%20State%20Planning%20Areas%20with%20restrictions.pdf.

Figure 2. 2012-2017 Five-Year Plan Planning Area: Alaska

Source: Bureau of Ocean Energy Management, http://www.boem.gov/uploadedFiles/BOEM/Oil_and_Gas_Energy_Program/Leasing/Five_Year_Program/2012-2017/Program_Area_Maps/Alaska%20Planning%20Areas%20with%20restrictions.pdf.

BOEM has published a Draft Proposed Program for the 2017-2022 Five Year Plan,49 and is in the process of reviewing comments submitted on the Draft Proposed Program for production of the forthcoming Final Proposed Program. Interested parties will have an opportunity to comment on the Final Proposed Program after its publication.

Lease Sales

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.50

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The process begins when the Director of BOEM 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 areasspecific parcels and comments on which areas should receive special concern and analysis.5158 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.5259 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.53

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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 location5461 of a proposed lease sale within 60 days after notice of the lease sale.5562 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.56

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The Director of BOEM publishes the approved list of lease sale offerings in the Federal Register (and other publications) at least 30 days prior to the date of the sale.5764 This notice must describe the areas subject to the sale and any stipulations, terms, and conditions of the sale.5865 The bidding is to occur under conditions described in the notice and must be consistent with certain baseline requirements established in the OCSLA.59

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Although the statute establishes base requirements for the competitive bidding process and sets forth a variety of possible bid formats,6067 some of these requirements are subject to modification at the discretion of the Secretary.6168 Before the 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 action to the Secretary of the Interior as may be necessary to prevent violation of antitrust laws.6269 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.6370 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.64

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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.6572 Several provisions authorize royalty reductions or suspensions. Royalty rates or net profit shares may be reduced below the general minimums or eliminated to promote increased production.6673 For leases located in "the Western and Central Planning Areas of the Gulf of Mexico and 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.6774 Royalties may also be suspended under certain conditions by BOEM pursuant to the Outer Continental Shelf Deep Water Royalty Relief Act, discussed infra.

The OCSLA generally requires successful bidders to furnish a variety of up-front payments and performance bonds upon being granted a lease.6875 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 in certain circumstances.6976 Finally, the law indicates that a lease entitles the lessee to explore for, develop, and produce oil and gas, conditioned on applicable due diligence requirements and the approval of a development and production plan, discussed below.70

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Exploration

ExplorationLessees planning exploration for oil and gas pursuant to an OCSLA lease must prepare and comply with an approved exploration plan.7178 Detailed information and analysis must accompany the submission of an exploration plan, and, upon receipt of a complete proposed plan, the relevant BOEM regional supervisor is required to submit the plan to the governor of an affected state and the state's Coastal Zone Management agency.72

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Under the Coastal Zone Management Act, federal actions and federally permitted projects, including those in federal waters, must be submitted for state review.7380 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 BOEM and state approval or succeed in appealing the state's determination to the Secretary of Commerce.7481 Simultaneously, the BOEM regional supervisor is to analyze the environmental impacts of the proposed exploration activities under NEPA; however, regulations prescribe that BOEM complete its action on the plan review within 30 days. Hence, extensive environmental review at this stage may be constrained or rely heavily upon previously prepared NEPA documents.7582 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.7683 Even after an exploration plan has been approved, drilling associated with exploration remains subject to the relevant BOEM district supervisor's approval of an application for a permit to drill. This approval hinges on a more detailed review of specific drilling plan filed by the lessee.

Development and Production

While exploration often will involve drilling wells, the scale of such activities is likely to significantly increaseincrease significantly during the development and production phase. Accordingly, additional regulatory review and environmental analysis are typically required before this stage begins.7784 Operators are required to submit a Development and Production Plan for areas where significant development has not occurred before7885 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.7986 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.8087 As with the processes outlined above, the submission of these documents complements any environmental analysis required under NEPA. It may not always be necessary to prepare a new EIS at this stage, and environmental analysis may be tied to previously prepared NEPA documents.8188 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.82 Additionally89Also, if the drilling project involves "non-conventional production or completion technology, regardless of water depth," applicants might also submit a Deepwater Operations Plan (DWOP) and a Conceptual Plan.83 allow90 This allows BOEM to review the engineering, safety, and environmental impacts associated with these technologies.84

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As with the exploration stage, actual drilling requires approval of an Application for Permit to Drill (APD).8592 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.86

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Lease Suspension and Cancellation

The OCSLA authorizes the Secretary of the Interior to promulgate regulations on lease suspension and cancellation.8794 The Secretary's discretion over the use of these authorities is specifically limited to a set number of circumstances established by the OCSLA. These circumstances 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 BOEM Regional Supervisor, given appropriate justification.8895 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.... "89"96 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 encountered in obtaining required permits or consents.... "90"97 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.9198 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.... "92

"99

If a suspension period reaches five years,93100 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 other aquatic life), to property, to any mineral (in areas leased or not leased), to 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.... "94

"101

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 cancellation95102 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.96

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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.97104 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 lease or regulations continues for a period of 30 days after the mailing.98105 Similar noncompliance by the owner of a producing lease can result in cancellation after an appropriate proceeding in any U.S. district court with jurisdiction as provided for under the OCSLA.99

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Lease Assignments and Transfers

The OCSLA also provides the framework for federal oversight of transfers of offshore oil and gas exploration and production leases. Section 5(b) of the OCSLA states that "[t]he issuance and continuance in effect of any lease, or of any assignment or other transfer of any lease, under the provisions of this Act shall be conditioned upon compliance with regulations issued under this Act."100107 The OCSLA further provides that "[n]o lease issued under this Act may be sold, exchanged, assigned, or otherwise transferred except with the approval of the Secretary [of the Interior, whose authority is exercised by BOEM]. Prior to any such approval, the Secretary shall consult with and give due consideration to the views of the Attorney General."101108 These two requirements—of continued compliance with the OCSLA and the regulations issued pursuant to it, and of obtaining BOEM approval prior to transfer—are the only restrictions placed upon transfers by the OCSLA.102

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The terms of the lease itself create obligations for offshore oil and natural gas exploration and production lessees. BOEM employs a form lease, so all lessees are bound by virtually identical lease terms and conditions. With respect to transfers, Section 20 of the form lease provides that "[t]he lessee shall file for approval for with the appropriate field office of the Bureau of Ocean Energy Management, any instrument of assignment or other transfer of this lease, or any interest therein, in accordance with applicable regulations."103110 This filing requirement is the only new restriction or condition placed on transfers by the terms of the lease. However, the regulations issued by the agency pursuant to its OCSLA authority set forth more detailed requirements applicable to transfers of all or part of the lease.

Subpart J of 30 C.F.R. Part 556 sets forth the regulatory requirements adopted by BOEM for the assignment or transfer of offshore oil and natural gas exploration and production leases. Section 556.62(a) lists the requirements for recipients of transferred leases in whole or in part. The regulation states that BOEM will "approve the assignment to you of the ownership of the record title to a lease or any undivided interest in a lease, or an officially designated subdivision of the lease, only if: (1) [y]ou qualify to hold a lease under §556.35 (2); [y]ou provide the bond coverage required under Subpart I of this part; and (3) [t]he Regional Director [of BOEM] approves the assignment."

The criteria cited in this regulation can trigger further regulatory obligations. For example, the requirement that the transferee be qualified to hold a lease under 30 C.F.R. Section 556.35(b) means that, unless the requirement is waived by the agency, the transferee must be either (i) citizens or nationals of the United States; (ii) aliens lawfully admitted for permanent residence in the United States; (iii) corporations organized under the laws of the United States or any state therein (including territories and the District of Columbia); or (iv) associations of such citizens, nationals, resident aliens, or corporations.104 Only these parties may be assigned all or part of an offshore lease. Similarly, the regulations require that the transferee satisfy the applicable regulatory bonding requirements,105 which mandate the satisfaction of several obligations at varying stages of the exploration and production process. For example, bonding requirements apply to lessees, and therefore transferees, if various activities are undertaken pursuant to the lease. Submission of a proposed Exploration Plan for approval triggers a new set of bonding requirements,106 as does submission of a Development and Production Plan or Development Operations Coordination Document.107 The amount of bonding necessary can be adjusted by the Regional Director based on a variety of circumstances.108 The regulations also provide a number of other requirements applicable to the bonds themselves, including procedures for lapses in bond coverage109 or upon termination of the lease,110 or for the use of alternative financial instruments to satisfy the bonding requirements.111 All of these bonding requirements are applicable to transferees, although as noted previously, in the case of partial transfers another record title owner of the lease may also satisfy the requirements.

Another ministerial component of the transfer process is the approval of the transaction by the BOEM Regional Director. 30 C.F.R. Section 556.64 sets forth the process for requesting approval of a transfer from the Regional Director. The regulations also require consultation with the Attorney General prior to approval of the transfer, although BOEM may act on the transfer if the Attorney General does not respond to a request for consultation within 30 days.112 While a separate instrument of assignment must be filed for each lease transfer, if there are multiple transfers to the same person, association, or corporation, one request for approval of the transfers may be deemed sufficient.113

The regulations also offer some clarification regarding the procedures for partial transfers. When all of the record title for only a portion of the acreage in a lease is transferred, the transferred and retained portions are segregated and considered to be separate and distinct leases by BOEM, making the transferee a lessee from the government's perspective, with the lease being maintained under separate records and all provisions of the lease being applicable to the transferee, including rental requirements, royalty rights, and term of the lease.114

111

Royalty Collection and Revenue Distribution

As noted above, most leases obligate the lessee to pay royalties based on the "amount or value of the production saved, removed or sold" by the lessee.115112 Most leases obligate the lessee to pay a royalty rate of at least 12.5%, 116113 although some leases are exempt from payment pursuant to a statutory or administratively determined exemption.117114 The Office of Natural Resources Revenue (ONRR) is the agency tasked with collection and disbursement of royalties from both onshore and offshore oil and gas production on federal lands.

Most of the revenue collected by the ONRR from royalty payments and any other payments associated with offshore oil and gas leases is "deposited in the Treasury of the United States and credited to miscellaneous receipts."118115 However, a few statutory provisions direct some revenue to state and local governments in an effort to offset the disparate impacts of some offshore oil and gas exploration and production activity borne by coastal states and localities.

Section 8(g) of OCSLA addresses leasing details for "lands containing tracts wholly or partially within three nautical miles of the seaward boundary of any coastal State,"119116 that is, the first three nautical miles of federal waters which border on state waters and, in most cases, are within several miles of the state's shoreline. Under the terms of Section 8(g), all revenue from leases wholly within that three-nautical-mile range must be deposited in a dedicated account in the Treasury.120117 For leases partially within the three nautical mile range of state waters, a corresponding portion of the revenue from the lease must be deposited in the special account.121118 The Secretary then must transfer to the coastal state 27% of the revenues collected from leases near their coastal waters.122119 If the tract in question lies only partly within the first three nautical miles of federal waters, the disbursement to the coastal state is adjusted based on the percentage of the tract that lies within those three nautical miles.123120 OCSLA also establishes a procedure for the resolution of boundary disputes.124

121

Certain revenue from certain leases in the Gulf of Mexico is also diverted from the general treasury by operation of law. Under the Gulf of Mexico Energy Security Act of 2006 (GOMESA),125122 50% of "qualified Outer Continental Shelf revenues" are to be deposited into a special account.126123 The Secretary then must disburse 75% of the revenue deposited in that special account (or 37.5% of the total revenue) to the "Gulf Producing States" in accordance with a formula based in part on each state's distance from the lease tract, including further allocation to political subdivisions within the states.127124 The states and political subdivisions are free to spend that money for any of the "authorized uses" set forth in GOMESA, including mitigation of various types of environmental harms that may result from offshore oil and gas exploration and production.128125 The remaining 25% of the revenue deposited in the special account (or 12.5% of the total revenue) is directed to the states for expenditure in accordance with Section 6 of the Land and Water Conservation Fund Act of 1965,129126 which provides for apportionment of funds to the states for purposes of land acquisition, planning, and development for recreational purposes.130127

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 theThe Marine Mammal Protection Act,131128 Endangered Species Act,132129 and other environmental laws have providedprovide mechanisms for challenging actions associated with offshore oil and gas production in the past.133130 Of primary interest here, however, are legal challenges to agency action with respect to the planning, leasing, exploration, and development phases under the procedures mandated by the OCSLA itself and the related environmental review required by the National Environmental Policy Act.

Suits Under the Outer Continental Shelf Lands Act

The Administrative Procedure Act 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.134131 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 planprogram is vested in the U.S. Court of Appeals for the D.C. Circuit, subject to appellate review by writ of certiorari from the U.S. Supreme Court.135132 A few challenges to five-year plansprograms have been brought. The first, California ex. rel. Brown v. Watt,136133 involved a variety of challenges to the 1980-1985 planprogram, and, while the court ultimately found that the Secretary had failed to comply with certain procedural requirements in making determinations, the court established a relatively deferential standard of review, which it has continued to apply in later challenges. When reviewing "findings of ascertainable fact made by the Secretary," the court will requirerequired the Secretary's decisions to be supported by "substantial evidence."137134 However, the court noted that many of the decisions required in the formulation of the five-year plan will involve the determination of policythat inform the five-year program involve policy determinations 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."138

135

The standards for review outlined in Watt have been upheld in subsequent litigation related to the five-year plan.139program.136 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."140137 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 and explain the legal or factual basis for leasing determinations at this stage and explain those determinations. More searching judicial review of the Secretary's analysis is not required.141

138

Litigation under the OCSLA has also challenged actions taken during the leasing phase. As described above, the OCSLA authorizes states to submit 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 interest and the well-being of the citizens of the affected State."142139 Courts have typically applied the deferential "arbitrary and capricious" standard to the 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 performedon how to balance the national interest with state considerations, agency action will generally be upheld so long as "some consideration of the relevant factors ..." takes place.143140 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 balancing of interests insufficient.144141 However, it should be noted that the Massachusetts cases reviewed agency action that was not supported by explicit 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/BOEM to require royalty payments on certain offshore leases allegedly subject toOther litigation has focused on mandatory royalty relief provisions. In Kerr-McGee Oil & Gas Corp. v. Allred, the plaintiff, an oil and gas company operating offshore wells in the Gulf of Mexico pursuant to federal leases, challenged actions by the department to collect royalties on deepwater oil and gas production.145142 The plaintiff alleged the department does not have authority to assess royalties based on an interpretation of amendments to the OCSLA found in the 1995 Outer Continental Shelf Deep Water 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.146

143

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, that is, during the first five years after the act's enactment. The third category of leases is the source 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 from those applicable to the other two categories. Kerr-McGee argued that the department has a nondiscretionary duty under the DWRRA to provide royalty relief on its deepwater leases, and that the statute does not provide an 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 leases147144 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:

[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:

(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.148

145

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 Kerr-McGee'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.149146 On January 12, 2009, the U.S. Court of Appeals for the Fifth Circuit issued a decision affirming the district court's ruling,150147 and on October 5, 2009, the U.S. Supreme Court denied a petition for writ of certiorari.151 148 In Center for Biological Diversity v. U.S. Department of the Interior,152149 the plaintiff challenged the five-year planprogram for 2007-2012 on several grounds. Among these was a claim, including that DOI had failed to satisfy the requirement found in Section 18(a)(2)(G) of the OCLSA that, in preparing the five-year plan, DOI must, which requires DOI to consider "the relative environmental sensitivity and marine productivity of different areas of the outer Continental Shelf."153150 The court found that DOI's analysis, which relied solely on "physical characteristics" of different shoreline areas, did not satisfy the requirements of Section 18(a)(2)(G) requirements because it failed to consider non-shoreline areas of the OCS.154151 The court therefore vacated the five-year program and remanded it to DOI for reconsideration. In a later order, the court clarified that this relief related only to those portions of the five-year plan that related toprogram that addressed leasing in the Chukchi, Beaufort, and Bering Seas, as the environmental sensitivity analysis for these areas was the only analysis that was found to be deficient.155

152

Suits Under the National Environmental Policy Act

In the context of proposed OCS development, NEPA regulations generally require publication ofthe agency to publish 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, EIS, to review comments on the scope of the EIS, to prepare a draft EIS, to hold a comment period on the draft EIS, and publication ofto publish a final EIS addressing all comments received at each stage of the leasing process where government action will significantly affect the environment.156153 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.157 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 decision154 Lawsuits brought under NEPA may indirectly challenge agency decisions by questioning the adequacy of the agency's environmental analysis.

In Natural Resources Defense Council v. Hodel,158155 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 examinedthe agency did not have to examine every possible alternative, and that the determination as to adequacy was subject to the "rule of reason."159156 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.160157 However, without significant explanation of the standard of review to be applied, the court found that the Secretary's failure to analyze certain cumulative impacts was a violation of NEPA.161158 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.162

159

As mentioned above, NEPA plays a role in the leasing phase as well. BOEM often uses NEPA and its tiering option to evaluate lease sales.163 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.164160 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.165161 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.

It is also possible to challenge exploration and development plans under NEPA. In Edwardsen v. U.S. Department of the Interior, the Ninth Circuit Court 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 sale, the requirements of NEPA were satisfied.166162 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. 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.

State Laws That Ban or Regulate Offshore Resource Development

Table A-1. State Laws That Ban or Regulate
Offshore Resource Development: Policy and Statutes

State

Policy

Statutes

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 §§9-15-18; 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 may 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 currently has a general ban in place restricting any state agency from issuing new offshore leases, unless the President of the United States determines that there is a "severe energy supply interruption and has ordered distribution of the 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).

Authorization:
Cal. Pub. Res. Code §§6870 et. seq.; 6240 et seq.

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.

Ban:
Del. Code Ann. tit. 7 ch. 61 §6102(e).

Authorization:
Del. Code. Ann. tit. 7 ch. 61.

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; 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.

Authorization:
Fla. Stat. Ann. §§377.01 et seq.; 253.001 et seq.

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. §50-16-43.

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. 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 all state 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 the Chesapeake Bay, its tributaries, and the Chesapeake Bay Critical Area are unavailable for oil and gas development.

Ban:
Md. Code, Envt. §14-107.

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. Many of the state's offshore areas are designated as ocean sanctuaries 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.

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. Specific 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 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

New Hampshire does not appear to have laws addressing offshore oil and gas development in state waters.

 

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 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 state. 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 does 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.

SC

The State 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.

Source: CRS.

Author Contact Information

[author name scrubbed], Legislative Attorney ([email address scrubbed], [phone number scrubbed])

Footnotes

Id. at Art. 76.1.

34. 39. 43 U.S.C. §1344(d).

51. Id.

11430 C.F.R. §556.35(b)

1.

United Nations Convention on the Law of the Sea III (entered into force November 16, 1994) (hereinafter UNCLOS).

2.

Id. at Art. 56.1.

3.

Id. at Art. 55.

4.
45.

Id. at Art. 76.4-76.7.

56.

Id. at Art. 77.1.

67.

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).

78.

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-league offshore boundary. See United States v. Louisiana, 363 U.S. 1, 36-64 (1960); United States v. Florida, 363 U.S. 121, 121-129 (1960).

89.

43 U.S.C. §1331(a).

910.

43 U.S.C.Id. at §§1301 et seq.

1011.

A geographical or nautical mile is equal to 6,080.20 feet, as opposed to a statute mile, which is equal to 5,280 feet.

1112.

43 U.S.C. §1301(b).

1213.

A marine league is equal to 18,228.3 feet.

1314.

43 U.S.C. §§1312, 1301(b).

1415.

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.").

1516.

43 U.S.C. §1311.

1617.

43 U.S.C.Id. at §§1331-1356.

1718.

43 U.S.C.Id. at §1332(3).

1819.

43 U.S.C.Id. at §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.

1920.

Id.

2021.

43 U.S.C.Id. at §§1331(a), 1332, 1333(a)(1).

2122.

43 U.S.C.Id. at §1341(a).

2223.

See, e.g., P.L. 108-447, §§107-109.

2324.

P.L. 97-100, §109.

2425.

BOEM, the Bureau of Safety and Environmental Enforcement (BSEE), and the Office of Natural Resources Revenue (ONRR) are successors to the agency formerly known the Minerals Management Service (MMS). MMS was renamed the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) pursuant to Secretarial Order 3302, issued on June 18, 2010. The jurisdiction and responsibilities of BOEMRE were subsequently divided among the newly created BOEM, BSEE, and ONRR in a second reorganization phase completed on October 1, 2011. For further details about this reorganization, see http://www.boem.gov/About-BOEM/Reorganization/Reorganization.aspx.

2526.

Statement on Outer Continental Shelf Oil and Gas Development, 26 Weekly Comp. Pres. Doc. 1006 (June 26, 1990). Previous orders pursuant to Section 12(a) covered areas of the Key Largo Coral Reef Preserve (Proclamation 3339: Establishing the Key Largo Coral Reef Preserve, 25 Fed. Reg. 2,352 (Mar. 19, 1960)) and the Santa Barbara Channel (Outer Continental Shelf off California: Establishment of Santa Barbara Channel Ecological Preserve, 34 Fed. Reg. 5,655 (March 26, 1969)). 27).

26.

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).

2728.

Memorandum on Modification of the Withdrawal of Certain Areas of the United States Outer Continental Shelf from Leasing Disposition, 44 Weekly Comp. Pres. Doc. 986 (July 14, 2008).

2829.

Memorandum on Withdrawal of Certain Areas of the United States Outer Continental Shelf from Leasing Disposition, 2010 Daily Comp. Pres. Docs., 2010 DCPD No. 00214 (March 31, 2010).

2930.

Memorandum on Withdrawal of Certain Areas of the United States Outer Continental Shelf from Leasing Disposition, 2014 Daily Comp. Pres. Docs., 2014 DCPD No. 00934 (December 16, 2014).

3031.

Memorandum on Withdrawal of Certain Areas of the United States Outer Continental Shelf Offshore Alaska from Leasing Disposition, 2015 Daily Comp. Pres. Docs., 2015 DCPD No. 00059.

31(January 27, 2015).
32.

Memorandum on Withdrawal of Certain Portions of the United States Arctic Outer Continental Shelf from Mineral Leasing, 2016 Daily Comp. Pres. Doc. (December 20, 2016).

33.

Memorandum on Withdrawal of Certain Areas off the Atlantic Coast on the Outer Continental Shelf from Mineral Leasing, 2016 Daily Comp. Pres. Doc. (December 20, 2016).

P.L. 109-432.

3235.

Id. at §103.

3336.

Id. at, §104(a).

3437.

P.L. 95-372.

3538.

Id.

43 U.S.C. §1344.

3640.

43 U.S.C.Id. at §§1337, 1345.

3741.

43 U.S.C.Id. at §1340.

3842.

43 U.S.C.Id. at §1351.

3943.

43 U.S.C.Id. at §1344(a), (e).

4044.

Id.

4145.

"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;
(3) which is receiving, or in accordance 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 oil spill, blowout, or release of oil or gas from vessels, pipelines, or other transshipment facilities....

43 U.S.C. §1331(f).

4246.

43 U.S.C. §1344(d).

4347.

Id.; see also 30 C.F.R. §§556.16-556.20

48.
4449.

43 U.S.C.Id. at §1344(de).

4550.

Id.

42 U.S.C. §4332(2)(C). In general, NEPA and the regulations that govern its administration require various levels of environmental analysis depending on the circumstances and the type of federal 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 federal 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 primary purpose of an EIS is to ensure that environmental consequences are considered.

4652.

See Natural Resources Defense Council v. Hodel, 865 F.2d 288, 310 (D.C. Cir.1988).

4753.

Documents related to the current Five-Year PlanProgram are available aton the BOEM website at http://www.boem.gov/Oil-and-Gas-Energy-Program/Leasing/Five-Year-Program/2012-2017/Five-Year-Program.aspxhttps://www.boem.gov/Five-Year-Program-2017-2022/.

4854.

Proposed Final2017-2022 Outer Continental Shelf Oil &and Gas Leasing Program 2012-2017, at 1: Proposed Final Program, at S-2. Document available at http://boem.gov/uploadedFiles/BOEM/Oil_and_Gas_Energy_Program/Leasing/Five_Year_Program/2012-2017_Five_Year_Program/PFP%2012-17.pdfhttps://www.boem.gov/2017-2022-OCS-Oil-and-Gas-Leasing-PFP/.

55.
4956.

The 2017-2022 Draft Proposed Program is available at http://www.boem.gov/2017-2022-DPP/Note that these maps do not incorporate the December 2016 presidential withdrawal of the areas designated as the Chukchi Sea and Beaufort Sea Planning Areas.

5057.

43 U.S.C. §1337.

5158.

30 C.F.R. §§556.23, 556.25302.

5259.

30 C.F.R.Id. at §556.26304.

5360.

30 C.F.R. §556.29Id.

5461.

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. at §1337(b). The law and its implementing regulations also set the range of initial lease terms and baseline conditions for lease renewal.

5562.

43 U.S.C. §1345(a); see also 30 C.F.R. §556.31.

5663.

43 U.S.C. §1345(c).

5764.

43 U.S.C.Id. at §1337(l).

5865.

30 C.F.R. §556.32(1)308.

5966.

See 43 U.S.C. §1337.

6067.

43 U.S.C.Id. at §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. §§556.35-556.47.

6168.

43 U.S.C. §§1337(a)(1)-(3), (8)-(9).

6269.

43 U.S.C. §1337(c); 30 C.F.R. §556.47(dId. at §1337(c).

6370.

43 U.S.C.Id. at §1337(c), (f).

6471.

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).

6572.

43 U.S.C. §1337(a),

6673.

Id. at §1337(a)(3).

6774.

43 U.S.C.Id. at §1337(a)(3)(B).

6875.

43 U.S.C.Id. at §1337(a)(7); 30 C.F.R. §§556.52900-556.59907.

6976.

43 U.S.C. §1337.

7077.

43 U.S.C.Id. at §1337(b)(4).

7178.

43 U.S.C. §1340(b), (c).

7279.

30 C.F.R. §§550.226, 550.227, 550.232, 550.235.

7380.

16 U.S.C. §1456(c).

7481.

30 C.F.R. §550.235.

7582.

30 C.F.R.Id. at §550.232(c).

7683.

30 C.F.R.Id. at §§550.231-250.233.

7784.

43 U.S.C. §1351.

7885.

30 C.F.R. §550.201.

7986.

Id.

8087.

30 C.F.R.Id. at §§550.24201-550.262.

8188.

The regulations indicate that "at least once in each planning area (other than the western and central Gulf of Mexico planning areas) we [BOEM] will prepare an environmental impact statement (EIS).... " 30 C.F.R. §550.269.

8289.

30 C.F.R.Id. at §550.267.

8390.

30 C.F.R. §§550.286, 550.287Id. at §§250.286-250.295.

8491.

30 C.F.R. §§550.289, 550.292Id..

8592.

30 C.F.R. §§550.410-550Id. at §§250.410-250.469.

8693.

30 C.F.R. §550Id. at §250.411.

8794.

43 U.S.C. §1334; see also 30 C.F.R. §§550.168-550.185.

8895.

30 C.F.R. §§550250.168, 550250.171-550250.175.

8996.

43 U.S.C. §1334(a)(1).

9097.

30 C.F.R. §550250.173-550250.175.

9198.

43 U.S.C. §1334(a)(1).

9299.

Id.

93100.

43 U.S.C.Id. at §1334(a)(2)(B). The requisite suspension period may be reduced upon the request of the lessee.

94101.

43 U.S.C.Id. at §1334(a)(2)(A)(i)-(iii). For regulations implementing the cancellation provisions, see 30 C.F.R. §§550.180-550.185.

95102.

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 oil spill, and all other costs reasonably anticipated on the lease.... " 43 U.S.C. §1334(a)(2)(C).

96103.

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. §§550.184-550.185.

97104.

43 U.S.C. §1334(b).

98105.

Id. at §1334(c).

99106.

Id. at §1334(d).

100107.

Id. at §1334(b).

101108.

Id. at §1337(e).

102109.

It is important to note that a secondary market for offshore oil and gas exploration and production leases has developed. Although lease transfers of this type need only comply with the OCSLA and BOEM provisions discussed in this section, transactions in a secondary market might come under the jurisdiction of other federal laws and agencies.

103110.

Form BOEM-2005 (October 2011).

104111.

See 30 C.F.R. §§556.700-556.810.

112.

43 U.S.C. §1337(a)(1).

113.

Id.

105.

Id. at §556.62(a)(2).

106.

Id. at §556.53(a).

107.

Id. at §556.53 (b).

108.

Id. at §556.53 (c)-(f).

109.

Id. at §556.55.

110.

Id. at §556.58.

111.

Id. at §556.52 (f)-(g), §256.56, §256.57.

112.

Id. at §556.65.

113.

Id. at §556.67.

114.

Id. at §556.68.

115.

43 U.S.C. §1337(a)(1).

116.

Id.

117.

The Deepwater Royalty Relief Act of 1995 (P.L. 104-58), discussed in more detail later in this report, provides for an exemption for certain deepwater leases issued during a specific time frame. In addition, Section 8 of OCLSA (43 U.S.C. §1337) authorizes certain administrative exemptions to be issued at the discretion of BOEM. For further information on the various exemptions to royalty payment obligations, see http://www.boem.gov/Royalty-Relief-Information/.

118115.

43 U.S.C. §1338.

119116.

Id. at §1337(g)(1).

120117.

Id. at §1337(g)(2).

121118.

Id.

122119.

Id.

123120.

Id.

124121.

Id. at §1337(g)(5).

125122.

P.L. 109-432. 43 U.S.C. §1331 note.

126123.

Id. at §105(a)(2).

127124.

Id. at §105(a)(2)(A), §105(b).

128125.

Id. at §105(b).

129126.

Id. at §105(a)(2)(B).

130127.

16 U.S.C. §460l-8.

131128.

16 U.S.C.Id. at §§1361-1423.

132129.

16 U.S.C.Id. at §§1531-1544.

133130.

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).

134131.

43 U.S.C. §1349.

135132.

43 U.S.C.Id. at §1349(c).

136133.

668 F.2d 1290 (D.C. Cir. 1981).

137134.

Id. at 1302; see also 43 U.S.C. §1349(c)(6).

138135.

Id. at 1301-1302 (quoting Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416 (1971) (internal quotations omitted)).

139136.

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).

140137.

California, 712 F.2d at 596 (internal quotations omitted).

141138.

Hodel, 865 F.2d at 305.

142139.

43 U.S.C. §1345(d).

143140.

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).

144141.

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).

145142.

Kerr-McGee v. Allred, No, 2:06 CV 0439, 2007 WL 3231634 (W.D. La. Oct. 30, 2007).

146143.

P.L. 104-58.

147144.

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.

148145.

P.L. 104-58.

149146.

Kerr-McGee v. Allred, slip. op. at 8-9.

150147.

Kerr-McGee Oil & Gas Corp. v. U.S. Dep't of Interior, 554 F.3d 1082 (5th Cir. 2009).

151148.

U.S. Dept. of the Interior v. Kerr-McGee Oil and Gas Corp., 130 S. Ct. 236 (Mem) (2009).

152149.

563 F.3d 466 (D.C. Cir. 2009).

153150.

43 U.S.C. §1344(a)(2)(G).

154151.

563 F.3d at 488.

155152.

Center for Biological Diversity v. U.S. Department of the Interior; Order upon consideration of respondent's petition for rehearing and/or clarification, No. 07-1247 (D.C. Cir. July 28, 2009).

156153.

40 C.F.R. §§1501.7, 1503.1, 1503.4, 1506.10.

157154.

42 U.S.C. §4332.

158155.

865 F.2d 288 (D.C. Cir. 1988).

159156.

Id. at 294.

160157.

Id. at 296.

161158.

Id. at 297-300.

162159.

See California ex. rel. Brown v. Watt, 668 F.2d 1290, 1301-1302 (D.C. Cir. 1981).

163.

See 30 C.F.R. §256.26(b); 40 C.F.R. §1508.28.

164160.

Tribal Village of Akutan v. Hodel, 869 F.2d 1185, 1191 (9th Cir. 1988).

165161.

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, 612-616 (9th Cir. 1984); North Slope Borough v. Andrus, 642 F.2d 589, 594-905 (D.C. Cir. 1980).

166162.

268 F.3d 781, 784-790 (9th Cir. 2001).