A staff discussion draft bill circulating through the House Natural Resources Committee seeks to make major structural and substantive changes to the Department of Interior's (DOI) offshore leasing programs. The draft bill, tentatively titled the "Federal Lands and Resources Energy Development Act of 2009," seeks to respond to major criticism that DOI and the Minerals Management Service faced last year on a variety of issues. The changes it proposes to make include: (1) consolidating all offshore and onshore energy leasing and revenue offices, including offshore renewables, under a new "Office of Federal Energy and Minerals Leasing," which would be headed by a new political appointee; (2) eliminating the royalty-in-kind program; (3) stricter ethics rules for DOI officials; (4) creating new "Regional OCS Councils" to oversee strategic planning; (5) authorizing DOI to issue new "diligent development" regulations for offshore leases; (6) repealing deepwater royalty relief; and (7) other changes to royalty collection procedures, including new criminal sanctions.
The draft bill is currently being reviewed by DOI. It is possible that the bill or sections of the bill may be combined with the House Energy and Commerce Committee's comprehensive energy and climate change bill, which won approval from that panel late last week.
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The MMS published a notice of proposed rules that would replace certain existing regulations that govern the federal offshore leasing process for oil and gas. The rewritten regulations would not be significantly different in substance, but would be written in simpler language, re-organized to reflect steps in the leasing process that have evolved over time, and standardized by making certain practices uniform among the 3 OCS regional offices.
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The Washington Post examines the positions of Virginia gubernatorial candidates on oil and gas exploration offshore Virginia. Terry McAuliffe, former chairman of the DNC and Hillary Clinton's 2008 presidential campaign, supports drilling 50 miles of the coast, while fellow Democrat R. Creigh Deeds favors drilling for gas and potentially oil if environmental impacts can be mitigated. Brian Moran, another Democrat, is the only candidate who opposes all drilling. Republican nominee Robert F. McDonnell strongly supports new drilling.
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Chairman Henry Waxman (D-CA) of the U.S. House Energy and Commerce Committee released yesterday an updated version of H.R. 2454, the House bill designed to promote green energy and address global climate change. The document, called a " Chairman's mark" in Capitol Hill parlance, would require that "ecosystem-based management" of ocean resources serve as the foundation for all marine resource planning, as opposed to resource-based management. The bill also mandates a study of regional marine spatial planning by DOI, FERC, and NOAA that would identify a mechanism for formally installing a marine spatial planning regime and requires the U.S. Council on Environmental Quality to determine whether the approach outlined in the study ought to be followed in developing policies for renewable energy on the OCS. An official with the American Wind Energy Association told E&E [subscription required] that her organization is not opposed to marine spatial planning, but that she is concerned that offshore renewable energy projects currently under development could be delayed as the marine spatial planning policy is developed and implemented.
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Research Partnership to Secure Energy for America (RPSEA) joined with several companies including StatoilHydro, BHP Billiton, BP, Shell, Chevron, ConocoPhillips, and Total to award a grant to Letton-Hall Group for research into improving measurement of production from ultra-deepwater oil wells. Find further details in the Houston Business Journal. [Subscription required]
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U.S. Energy Secretary Chu yesterday announced that Massachusetts will receive $25 million from the federal stimulus package to build the first commercial facility in the United States capable of testing large wind turbine blades. DOE's press release notes that the ability to produce turbine blades longer than 50 meters domestically will energize large-scale wind power project development, highlighting that one of the important benefits of the site is its "proximity to substantial offshore wind resources."
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Secretary of the Interior Ken Salazar yesterday asked the Department of Justice to seek clarification from the U.S. Court of Appeals for the District of Columbia Circuit on the scope of its April 17, 2009 decision that Bush Administration officials did not conduct sufficient scientific and environmental analysis before scheduling oil and gas lease sales on the Outer Continental Shelf off Alaska.
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The DOI's proposed budget for FY 2010 (which begins Oct. 1, 2009) has been released. The 2010 budget includes $24 million for the development of a robust renewable energy leasing program on the OCS.
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In an interesting and advantageous development for both nations, last week MMS signed a Memorandum of Understanding ("MOU") with the Norweigian Petroleum Directorate ("NPD"). The non-binding MOU will help the American and Norwegian counterparts share scientific and technical information and promote cooperative exploration and production strategies. Commenting on the MOU, MMS Acting Director Walter Cruickshank stated “I am confident this information exchange will enhance our efforts to develop the Outer Continental Shelf resources in a safe and responsible manner, as well as strengthen our and Norway’s practices and procedures.”
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Yesterday, U.S. Reps. Tim Murphy (R-PA) and Neil Abercrombie (D-HI) and a group of bipartisan House members introduced the American Conservation and Clean Energy Independence Act, H.R. 2227. The legislation would approve the 2010-2015 OCS Oil and Gas Leasing Program adopted during the Bush administration and expedite the leasing process for new exploration and production. Under the provisions of the bill, within 30 days of the bill's passage the Interior would be required to conduct a lease sale in each OCS planning area in which there is commercial interest in purchasing federal oil and gas leases for production. The agency would then be required to hold lease sales every 270 days thereafter upon a determination by the Secretary that commercial interest exists in a planning area.
In what would amount to a significant development if the legislation is passed, it would extend the seaward boundary of coastal states to 12 nautical miles from the current 3 miles applicable to most states. However, it appears that the federal government will maintain leasing and regulatory authority over “Federal oil and gas mineral rights” in the 3- to 12-mile zone. In an apparent effort to gain support from critical coastal state members, the legislation grants states the right to “exercise all of the sovereign powers of taxation” in this zone.
Importantly, the legislation would allocate 30% of the expected royalties generated from the exploration and production in the new 12-mile zone to producing coastal states. The U.S. Treasury would receive 10% of the expected revenues, and the remainder, in the ballpark of $1 trillion according to the summary of the bill, would be allocated to offset the costs of the renewable energy tax incentives and credits, and promote clean energy technology development, environmental restoration and protection, and energy efficiency. According to the section-by-section analysis of the legislation available on Rep. Murphy’s website, states also could receive royalties from renewable energy projects up to the 12-mile boundary. However, a close reading of the legislation indicates that this is not the case, as royalties are derived only from oil and gas activities in that zone.
A summary of the legislation is here. Rep. Murphy's press release can be found here.
No word yet on the bill's viability, but it seems to us that there is increasing recognition on Capitol Hill that a balanced energy portfolio, including traditional sources of energy, is in the nation's best interest … and is likely to obtain the most support on both sides of the aisle.
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Yesterday, MMS announced its release of two reports regarding oil production in the Gulf of Mexico: the Gulf of Mexico Oil and Gas Production Forecast: 2009-2018 and the Deepwater Gulf of Mexico 2009: Interim Report of 2008 Highlights. These reports highlight the trend toward deepwater oil exploration and production. In 2008, oil and gas operators announced 15 deepwater discoveries and began 7 new projects in the Gulf; 57% of all Gulf leases were located in deepwater (defined as water depths of at least 1,000 feet).
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On Monday, Vice President Joe Biden, Secretary of the Interior Ken Salazar, and Sen. Tom Carper (D-DE) spoke on offshore renewable energy projects at the University of Delaware. The DOI press release quotes Vice President Biden touting the recently released framework for alternative energy development on the OCS, saying "[w]ith this rule, the Interior Department is unlocking our vast offshore renewable resources." Secretary Salazar echoed the vice president's comments, saying that the framework "will enhance our energy security, create the foundation for a new offshore energy sector and share much-needed revenues from this development with coastal states."
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