Order Code RS22928
Updated August 6, 2008
Oil Development on Federal Lands and the
Outer Continental Shelf

Marc Humphries
Analyst in Energy Policy
Resources, Science, and Industry Division
Summary
Over the past year, crude oil prices have nearly doubled, reaching record levels.
Proposals before Congress include a number of legislative initiatives to increase
domestic oil production. These proposals have fallen into two broad categories: (1) to
open areas of the Outer Continental Shelf (OCS) which are currently under leasing
moratoria; and (2) to encourage companies holding oil and gas leases to diligently
develop leases to bring them into production. Two bills were introduced that would have
denied new leases to those lessees who were not developing their leases or producing
oil or gas (H.R. 6251 and H.R. 6515). The two bills, including similar provisions, were
introduced under suspension of the rules in the House and both failed to achieve the
necessary two-thirds support. Comparable legislation has been introduced in the Senate
(S. 3239).
There are also several proposals to lift the congressional OCS moratoria (e.g., H.R.
6418, H.R. 6529, and S. 3126, S. 3202), including an amendment to the FY2009
Interior, Environment and Related Agencies appropriation bill. Proponents of these
initiatives argue that promising areas should be open for exploration to maximize
domestic oil production as quickly as possible.
However, there are long lead times and often numerous considerations and
constraints in getting federal oil and gas leases from the lease sale into production.
Many leases never get explored before their primary lease term expires.
Introduction1
Over the past year, crude oil prices have nearly doubled, reaching record levels.
Proposals before Congress include a number of legislative initiatives to increase domestic
1 For a broader analysis of OCS leasing, revenue sharing, and the moratoria, please see CRS
Report RL33493, Outer Continental Shelf: Debate Over Oil and Gas Leasing and Revenue
Sharing.

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oil production. These proposals have fallen into two broad categories: to (1) open areas
of the Outer Continental Shelf (OCS) which are currently under leasing moratoria; and
to (2) encourage companies holding oil and gas leases to diligently develop leases to bring
them into production. Proponents of these initiatives argue that promising areas should
be open for exploration to maximize domestic oil production as soon as possible. This
report provides an overview of selected legislative initiatives, examines oil production
and resource data, and discusses oil development concerns on federal lands, both onshore
and on the OCS.2
Legislation and Issues
Under current law, the primary oil and gas lease term is for 10 years. If the lease is
not producing oil or gas in commercial quantities by the end of its primary term, the lease
reverts back to the government for a possible future lease sale — unless the lessee is
granted an extension. Extensions are granted for onshore lessees under 43 CFR 3107 for
a one-time, two-year period. Offshore extensions are granted under 30 CFR 250.180. The
regulation for offshore extensions does not specify the length of the extension. Also, it is
not clear how often the Bureau of Land Management(BLM) or Minerals Management
Service (MMS) grant extensions.3 It has been projected that as much as 4.8 million barrels
per day could be produced on non- producing leases (offshore and onshore).4 Critics,
however, assert that this rate of additional oil production is unattainable.
On July 17, 2008, the most recent Congressional energy proposal to reach the House
floor (H.R. 6515, Drill Responsibly in Leased Lands Act of 2008), was defeated under
a suspension of the rules vote (which requires a two-thirds majority) by 244-173. This act
was said to promote an “expeditious and environmentally responsible” development of
the National Petroleum Reserve in Alaska (NPRA) and would have denied new leases
to lessees that were not diligently developing their leases, producing oil or gas, or
relinquishing non-producing leases. Proponents of this bill argued that many of the lessees
are “sitting” on federal leases, and not producing oil or gas.
Although both bills, H.R. 6515, and H.R. 6251, retained the 10-year primary oil and
gas lease term, language removed from an earlier version of H.R. 6251 would have
reduced the primary lease term (for onshore and deepwater offshore) from a 10-year term
to five years (with extensions possible). On June 26, 2008, under suspension of the rules,
H.R. 6251 was also defeated by a vote of 223-195 (two-thirds needed for passage).
These two bills were referenced as “use it or lose it” proposals, supported by
policymakers who argued that it was unnecessary to lift the OCS moratorium because
there were millions of acres already leased that could yield crude oil production, but
which were presently inactive. It is unclear how much, and how quickly, additional
production would take place on non-producing leases. Some critics of “use it or lose it”
2 Federal lands include those lands with potential for oil and gas development onshore (279
million acres) and the OCS (1.76 billion acres).
3 The BLM administers the federal onshore leasing program and the MMS administers the
offshore leasing program, both agencies within the Department of the Interior.
4 Personal communication with House Committee on Natural Resources staff, June 2008.

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proposals argued that these proposals could create a disincentive for companies to seek
leases, and/or result in lower bonus bids on new leases. A “use it or lose it” policy, critics
of the bills argued, would not necessarily lead to additional production sooner; it might,
in fact, undercut that objective. As noted, implementation of “use it or lose it” legislation
could result in fewer bids or lower bid offers if a more stringent timeline were to be
imposed on all leases held. However, by maintaining the 10-year primary term, as both
bills would have done, more federal funds might be appropriated for permitting, and other
required environmental reviews.
A similar bill in the Senate (S. 3239, Responsible Federal Oil and Gas Lease Act)
would deny lessees new leases unless lessees were producing oil or gas on currently held
leases; if lessees do not diligently develop each lease, they would be required to relinquish
them. The House and Senate proposals would require the Secretary of the Interior to
define diligent development as it relates to oil and gas leases.
Shifts in Oil Production
U.S. crude oil production peaked at 9.637 million barrels per day in 1970. The
Energy Information Administration (EIA) of the Department of Energy projects that U.S.
oil production will increase from today’s 5.1 million barrels per day 5 (mbd) to 6.3 mbd
by 2018, then decline to 5.6 mbd by 2030, but EIA did not factor-in possible changes in
lease management.6 EIA projected that offshore crude oil production would increase from
about 1.4 mbd to 2.2 mbd by 2030. When the EIA included access to the OCS, currently
under the leasing moratoria, production was projected to rise by an additional 200,000
barrels per day by 2020 with no significant impact on prices.7
An anticipated rise in U.S. domestic production on federal lands is seen as coming
primarily from deepwater offshore areas as shallow water and onshore oil fields are in
decline. According to the MMS, deepwater oil already accounts for more than 70% of
offshore production and 18.5 % of total U.S. crude oil production. Since 2002, shallow
water lease sales have dropped from 418 to 264 while deepwater lease sales rose from 281
to 633. Deepwater lease sales spiked in 1997 at 1,110, following the Deepwater Royalty
Relief Act of 1995. Further, it is notable that there has been increasing exploration activity
and an increase in reported finds in the Gulf of Mexico in very deep waters since 2003.
Given that oil prices are set in a world market, any additions to U.S. oil supply must be
seen in the context of additions to oil supply worldwide.

Oil Lease Data for Federal Lands


According to the Department of the Interior agencies (Bureau of Land Management
and the Minerals Management Service), there are approximately 67 million acres of
“active” (meaning that the lease is still in its primary term) oil and gas leases on federal
lands that are not in production. About 33 million acres are located onshore and an
additional 34 million acres are located offshore. Approximately 12 million acres onshore
5 U.S. DOE, Energy Information Administration, Monthly Energy Review, June 2008.
6 U.S. DOE/EIA, Annual Energy Outlook, 2008.
7 U.S. DOE/EIA, Annual Energy Outlook, 2007.

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and about 10.5 million acres offshore are in producing status, (i.e., producing commercial
volumes) (see Table 1 below).8
Table 1. Oil on Federal Lands
Onshore
Offshore
Reservesa
11.6 billion barrels (bbl)b
15.43 billion barrelsc (includes
(includes 5.3 proved reserves
8.55 proved and unproved
plus 6.3 bbl of reserve
reserves plus 6.88 bbl of
appreciation)
reserve appreciation)
Undiscovered Technically
5.2 bbl
66.4 bbl
Recoverable Resources (UTRR)
possible oil available
UTRR possible oil unavailabled,e
19.0 bbl
17.84 bbl
Acreage available
113 million acres
178 million acres
Acreage unavailabled
166 million acres
574 million acres
Number of Leases
49,731
7,500
Producing Leases
21,612
1,600
Leased acres producing
11.8 million acresf
10.5 million acresg
Leased acres not producing
33.5 million acres
33.6 million acres
Percentage of acreage Offlimits
60%
79%
Percentage of UTRR Offlimitsh
62%
21%
Note: Terms used in this table and throughout the report such as proved reserves, unproved reserves,
reserve appreciation, and undiscovered technically recoverable resources are defined in the Department of
the Interior, MMS, Report to Congress: Comprehensive Inventory of U.S. OCS Oil and Natural Gas
Resources, February 2006. Energy Policy Act 2005, Section 357, Glossary.
a. EIA reports official U.S. proved oil reserves at 21 billion barrels. Further, they report offshore proved
oil reserves at 4.1 billion barrels.
b. Onshore oil reserve, resource, and acreage data from the Interagency report, Inventory of Onshore
Federal Oil and Natural Gas Resources and Restrictions to Their Development., Phase III Inventory.
In compliance with the Energy Act of 2000, P.L. 106-469, as amended by the Energy Policy Act of
2005, P.L. 109-58.
c. Oil reserve and resource data as shown in: DOI/MMS, Report to Congress: Comprehensive Inventory
of U.S. OCS Oil and Natural Gas Resources, February 2006, Executive Summary, p. vii.
d. For onshore UTRR, unavailable amounts include 6.7 billion barrels of oil on 55 million acres, pending
Land Use Decisions. Some of these barrels may become available or remain unavailable. This
category also includes acreage that technically could be leased and accessed through directional
drilling or drainage, but currently does not meet BLM criteria for being accessible.
e. Unavailable in the context of this report means lands that are formally withdrawn, inaccessible, or denied
funding for oil and gas pre-leasing or leasing activity.
f. Data for onshore leased producing and non-producing acreage provided by BLM, Steve Salzman,
Division of Fluid Minerals, June 2008.
g. Data for offshore leased producing and non-producing acreage provided by MMS, Office of
Congressional Affairs, Lyn Herdt, July 2008.
h. This figure represents 62% of 30.5 billion barrels of oil, of which 19 bbl is unavailable, 11.5 bbl
available (including 6.3 billion barrels of reserve appreciation).
8 Estimates provided by Bureau of Land Management and Minerals Management Service.

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For offshore oil, under the Known Resources category, (proved reserves, unproved
reserves, and reserve appreciation), the Minerals Management Service (MMS) estimates
oil reserves in the OCS to be 8.55 billion barrels. In addition, the MMS categorizes 6.88
billion barrels of oil as Reserve Appreciation. In the Undiscovered Technically
Recoverable Resources category, the MMS estimates oil resources to be near 86 billion
barrels. Within the Undiscovered Resources category, about 41 billion barrels of oil
would potentially come from the Gulf of Mexico and about 25.3 billion possible barrels
of oil would come from Alaska. With that total, roughly 66.4 billion possible barrels out
of 84.24 billion possible barrels are available (about 79%) for leasing in the current MMS
five-year leasing program. MMS estimates the amount unavailable at around 17.8 billion
possible barrels.9 Federal onshore proved oil reserves are estimated at 5.3 billion barrels,
plus about 6.3 billion barrels in reserve appreciation according to a recent survey of
onshore federal lands.10 Further, there is an estimated, 24.2 billion possible barrels of
undiscovered technically recoverable resources [see note above] on federal lands, of
which 19.0 billion possible barrels are offlimits.
The Energy Policy Act of 2005 (EPACT-05) enacted several provisions that were
aimed at expediting the development of oil and gas on public lands, particularly
concerned with the approval of applications for permits to drill (APDs) (see Table 2).
Some critics of EPACT-05 believe that the permitting is moving too fast without adequate
environmental review. Legislation has been introduced (H.R. 3221, The Energy Policy
and Revitalization Act of 2007) to repeal some of the provisions of EPACT that addressed
streamlining the permit and review process.
Table 2. Onshore Oil and Gas APDs and Wells Drilled
2000
2002
2004
2006
2007
APDs Approved
3,413
3,727
6,051
6,738
7,124
Wells Started
2,623
2,772
3,696
4,708
5,343
Source: Bureau of Land Management, Public Land Surveys, Various Years.
A number of concerns arise in the oil and gas leasing process that might delay or
prevent oil and gas development from taking place, or might account for the large number
of leases held in non-producing status. Below is a list of often-cited issues which,
individually or in combination, are used to explain why more leases are not producing.
! Rig or equipment availability, particularly offshore
! Higher capital costs
! Skilled labor shortages
! Leases in the development cycle (e.g., conducting environmental reviews,
permitting, or exploring) but not producing
! Legal challenges that might delay or prevent development
! No commercial discovery on a lease tract
9 Department of the Interior, Statement of C. Stephen Allred, before the Senate Committee on
Energy and Natural Resources, Resource Estimate Table, January 25, 2007.
10 Interagency Report, Inventory of Onshore Federal Oil and Natural Gas Resources and
Restrictions to Their Development, 2008.

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! Holding leases (because of the lack of capital or as “speculators”) to sell
or “farm out” at a later date Ability to secure extensions on non-
producing leases
! Securing and being able to hold large number of lease tracts, often
contiguous, to maximize return on their investment
Many leases expire before exploration or production occurs. Data from the BLM or
MMS on the development status for existing leases has not been made available; thus,
it is difficult to classify the amount of acreage that has had no activity, is in the permitting
stage, or is under exploration but not producing.
The OCS Moratoria
Under an annual Congressional funding prohibition (in the Interior, Environment,
and Related Agencies appropriation bill) and a Presidential Withdrawal, oil and gas
leasing and development has been banned in the offshore OCS areas along the U.S.
Atlantic and Pacific coasts. However, on July 14, 2008, under a Presidential Directive,
the Bush Administration lifted the Executive OCS moratoria that had been in place since
1990, first imposed by President George H.W. Bush, and extended to 2012 by President
Bill Clinton. The Congressional ban began in 1981 and was expanded and continued
through the annual appropriations process since that time. Each year Congress must
approve language that would prohibit funding for pre-leasing and leasing activity in
designated areas of the OCS. However, separate withdrawals might be enacted
legislatively, such as provided in the Gulf of Mexico Energy Security Act of 2006
(GOMESA, P.L. 109-432) which placed nearly all of the Eastern Gulf of Mexico under
a leasing and drilling moratorium until 2022. The Eastern Gulf of Mexico was not part
of the Executive OCS ban that was recently lifted by President Bush. Over the past
several years, there have been many legislative proposals to lift the congressional ban,
some of which have been successful, on part or all of the OCS. For example, GOMESA
removed a small section of the Central Gulf of Mexico (an area south of lease sale area
181; under a previous boundary configuration, the area was located in the Eastern Gulf
of Mexico). In 2003, Congress omitted language from the FY2004 Interior appropriation
bill that would have prevented lease sales in the North Aleutian Basin Planning Area of
Alaska. The President concurred with congressional actions, thus making that area open
for a future lease sale.
House (e.g., H.R. 6418 and H.R. 6529) and Senate (S. 3126) bills in the 110th
Congress would lift the congressional OCS moratoria on oil and gas development. In
addition there is a proposed amendment to the House Interior Appropriations bill that
would ban offshore oil and gas development within 50 miles of a state’s boundary, but
allow development beyond 50 miles. If the congressional ban were lifted entirely, the
Atlantic, Pacific, and Eastern Gulf of Mexico Planning Areas would then be made
available for pre-leasing and leasing activity in the next MMS five-year Leasing Program
(2012-2017) unless the current five-year leasing program is amended. If the appropriation
bills are not enacted by the end of FY2008, programs might be funded and activities
maintained, including the OCS moratoria, under a continuing resolution (CR). In previous
CRs, and under broad language, Congress has supported the OCS moratoria until
permanent appropriation language was enacted. The funding prohibition language in the
annual Interior appropriation bill does not include the Eastern Gulf of Mexico moratoria
that is in place until 2022.

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