Offshore Oil and Gas: Leasing “Pause,” Federal Leasing Review, and Current Issues

Offshore Oil and Gas: Leasing “Pause,” Federal Leasing Review, and Current Issues

Updated April 29, 2022
Offshore Oil and Gas: Leasing “Pause,” Federal Leasing
Review, and Current Issues
Offshore oil and gas leasing has been affected by executive
agency’s five-year oil and gas leasing program for 2017-
branch actions pertaining to energy leasing on all federal
2022. First, BOEM held Lease Sale 257 in the Gulf of
lands. On January 27, 2021, President Joe Biden issued
Mexico (originally scheduled for March 2021) on
Executive Order (E.O.) 14008, directing multiple actions to
November 17, 2021. The sale yielded $192 million in high
address climate change. Section 208 of the order directed
bids on 1.7 million acres. Compared with other Gulf sales
the Secretary of the Interior to “pause new oil and natural
held in the 2017-2022 leasing program, this was the second-
gas leases on public lands or in offshore waters pending
highest return in terms of bid revenues and the highest
completion of a comprehensive review and reconsideration
acreage bid on. However, on January 27, 2022, the U.S.
of Federal oil and gas permitting and leasing practices,” to
District Court for the District of Columbia vacated the
the extent that such actions were “consistent with applicable
November lease sale, finding fault with aspects of the sale’s
law.” The E.O. directed that the review evaluate “potential
environmental analysis concerning the greenhouse gas
climate and other impacts” associated with oil and gas
emissions impacts of Gulf leasing.
leasing, as well as whether to adjust royalties paid to the
federal government from onshore and offshore oil and gas
Separately, on October 22, 2021, BOEM published a draft
production to account for “climate costs.”
environmental impact statement (EIS) for another lease sale
scheduled under the 2017-2022 leasing program—Lease
As implemented by the Department of the Interior (DOI),
Sale 258 in Alaska’s Cook Inlet. The comment period for
the leasing pause consisted of a halt on sales of new
the draft EIS closed on December 13, 2021. DOI has not
onshore and offshore oil and gas leases following issuance
yet published a final EIS or decision regarding this sale.
of the E.O. Exploration and development of existing leases
were not halted. Some stakeholders contended that the
BOEM has made no announcements and initiated no
pause would affect long-term prospects for oil and gas
planning regarding Lease Sales 259 and 261, the final lease
investment, production, and revenues, while others asserted
sales (both in the Gulf of Mexico) scheduled for the 2017-
it would have few such impacts, given that activities on
2022 program. Given timing considerations associated with
existing leases were continuing.
lease sales and their environmental analysis, it appears that
BOEM would not have time to plan and conduct these sales
The leasing pause was enjoined by a court order in June
before the leasing program’s June 30, 2022, expiration.
2021. Subsequently, DOI’s Bureau of Ocean Energy
Management (BOEM) held an offshore lease sale for the
DOI’s Review Recommends Changes for
Gulf of Mexico, but the lease sale was later vacated by
Future Lease Sales
another court decision. Separately, the leasing program
DOI completed its review of the federal oil and gas leasing
review called for in the E.O. was completed in November
program and issued a report on November 26, 2021, with
2021 and recommended changes to the fiscal terms for
recommendations concerning offshore and onshore lease
onshore and offshore oil and gas leasing on federal lands.
sales and fiscal terms. Regarding offshore leasing, DOI
Issues for Congress include the impacts of the executive
recommended that BOEM consider alternatives to its
and judicial actions—and the implications of the proposed
current practice of area-wide leasing, under which all
fiscal changes—for future offshore oil and gas leasing on
available (i.e., not previously leased or withdrawn) lease
the U.S. outer continental shelf.
blocks within a given offshore planning area or broader
offshore region are offered in a single lease sale. DOI cited
Leasing Pause Ends, But Sale Invalidated
studies finding that area-wide leasing reduced “the amount
On June 15, 2021, in response to a lawsuit filed by multiple
of competition and the value of bids for each lease tract.”
state attorneys general, the U.S. District Court for the
Instead, DOI recommended offering “smaller areas” at each
Western District of Louisiana issued a preliminary
lease sale, narrowed through criteria related to
injunction prohibiting DOI from implementing the leasing
environmental protection, subsistence uses, resource
pause with respect to both onshore and offshore lease sales
potential, and financial considerations. Some industry
that the agency had halted. The court found, among other
commentators have opposed this idea, suggesting that
things, that DOI had acted in an “arbitrary and capricious”
resource access restrictions could result in unfulfilled oil
manner, in violation of the Administrative Procedure Act (5
and gas demand and a greater need for energy imports.
U.S.C. §§551 et seq.), by halting the lease sales solely on
the basis of the E.O.
The DOI review also recommended revisions to the fiscal
terms of offshore oil and gas leases, such as royalty rates,
BOEM complied with the court order by resuming work on
“to monetarily account for the costs of carbon dioxide,
offshore lease sales that had been scheduled under the
methane, and nitrous oxide.” DOI has discretion to regulate
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Offshore Oil and Gas: Leasing “Pause,” Federal Leasing Review, and Current Issues
such fiscal terms under the Outer Continental Shelf Lands
Opponents of such changes contend that they would
Act (OCSLA; 43 U.S.C. §§1331-1356b). The review did
discourage investment in federal offshore oil and gas
not recommend specific changes but stated that BOEM and
development, thus resulting in a greater reliance on foreign
DOI’s Bureau of Safety and Environmental Enforcement
oil and gas. Such a situation, they contend, leaves the nation
(BSEE) would study the matter.
more vulnerable to international market disruptions, and
could have negative environmental consequences to the
The DOI review indicated that BOEM and BSEE would
extent that foreign resources are developed with fewer
reevaluate guidance on granting offshore operators royalty
environmental safeguards than the United States requires.
relief—a reduction or waiver of royalties, typically to
Some argue, too, that increases in the costs of U.S. offshore
promote increased production—“insofar as royalty relief
development would result in lower bids at offshore lease
can have the effect of subsidizing uneconomic production at
auctions, so that the changes might not achieve the goal of
taxpayers’ expense.” Also, the review noted BOEM’s and
accounting for climate impacts by raising the overall costs
BSEE’s work on a proposed rulemaking to strengthen
of leasing in federal waters.
companies’ financial assurance coverage, and it
recommended establishment of a “fitness to operate”
Supporters of the proposed fiscal reforms state that they
standard to ensure offshore operators can meet their safety,
would provide a fairer return to taxpayers and would
environmental, and financial responsibilities.
address issues raised by the Government Accountability
Office, among others, about decommissioning liabilities
Issues for Congress
and achieving fair market value from the offshore leasing
program. They contend that some current fiscal
Lease Sale Schedule
arrangements, such as royalty relief for some leases,
The leasing pause, program review, and subsequent judicial
represent subsidies to the oil and gas industry that should be
actions have affected the timing of oil and gas lease sales
eliminated, particularly in light of concerns about the
under the 2017-2022 offshore leasing program. It appears
climate costs of oil and gas development. Some, including
that some sales originally scheduled in the program could
many environmental groups, support the recommended
not be prepared and held before the program expires in June
changes but see them as insufficient to address climate
2022. Further, the pause and review—including the
impacts from offshore oil and gas leasing. Some express the
review’s recommendation to end the practice of area-wide
view that the Biden Administration’s emission reduction
leasing—could affect BOEM’s decisions and timing for the
goals could be met only by ending federal offshore oil and
next five-year offshore oil and gas leasing program. The
gas leasing altogether.
Biden Administration has not yet published a draft of a new
program, and timing requirements associated with program
Offshore Revenue Considerations
preparation suggest that a new program could not be
Offshore oil and gas revenues account for most or all of the
finalized before the current program’s expiration. For more
funding for several federal conservation and restoration
information, see CRS Report R44692, Five-Year Offshore
programs, including the Land and Water Conservation Fund
Oil and Gas Leasing Program: Status and Issues in Brief.
(54 U.S.C. §§200301 et seq.), the Historic Preservation
Fund (54 U.S.C. §§303101-303103), and the National Parks
Some bills in the 117th Congress (e.g., H.R. 7012, H.R.
and Public Land Legacy Restoration Fund (54 U.S.C.
7094, H.R. 7292, S. 3214, S. 3762, S. 3822) would require
§200402). Also, under the OCSLA and the Gulf of Mexico
BOEM to hold the remaining lease sales in the 2017-2022
Energy Security Act of 2006 (43 U.S.C. §1331 note), a
program despite its expiration, and/or would give specific
portion of offshore oil and gas revenue is shared with
deadlines for releasing a new five-year program. Some of
coastal states, with most of the funds going to Alabama,
these bills would require lease sales in certain offshore
Louisiana, Mississippi, and Texas for coastal protection and
areas at regular intervals. By contrast, other bills (e.g., H.R.
restoration.
2519, H.R. 3764, H.R. 5376, S. 1115) would prohibit any
further leasing in certain offshore areas or throughout the
Federal offshore oil and gas revenues fluctuate from year to
U.S. outer continental shelf.
year based on multiple factors and totaled $4.1 billion in
FY2021. More than 90% of this total came from royalties,
Recommended Fiscal Changes
with the remainder from bonus bids at lease sales, rents
As discussed, BOEM and BSEE are studying potential
paid prior to production, and other sources. Fiscal reforms
fiscal changes to offshore oil and gas royalty rates and other
such as those discussed above could affect offshore
fiscal terms based on DOI’s November 2021 review. Some
revenues going forward, with uncertain outcomes. For
bills in the 117th Congress would mandate specific changes.
example, if offshore royalty rates for new leases increased,
For instance, House-passed budget reconciliation
this could result in higher federal revenues available for
legislation—H.R. 5376—includes provisions to raise the
disbursement to state and federal programs. Alternatively, if
minimum royalty rate for offshore oil and gas leases to
the royalty rates were high enough that operators were
14%. (The current minimum is 12.5%, and royalty rates
discouraged from investing in new leases, lower federal
established by BOEM for existing leases range from 12.5%
revenues and disbursements could result.
to 18.75%, depending on the lease date and water depth.)
House-passed H.R. 5376 also would establish new fees for
Laura B. Comay, Specialist in Natural Resources Policy
offshore oil and gas leases and would prohibit the Secretary
of the Interior from offering royalty relief on offshore
IF11909
leases.
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Offshore Oil and Gas: Leasing “Pause,” Federal Leasing Review, and Current Issues

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https://crsreports.congress.gov | IF11909 · VERSION 5 · UPDATED