Tom Fry - President, National Ocean Industries Association
Tom Fry
For nearly three decades, the offshore oil and gas industry in the United States operated under Administrative and Congressional policies that arbitrarily placed the majority of our federal offshore lands – over 80% – off limits to oil and gas exploration. With these restrictions now removed, it might appear that the path for expansion of the domestic offshore energy industry is clear. After all, recent record oil and gasoline prices, an ongoing global economic crisis, and a new Administration and Congress have brought about a shift in public opinion and a majority of Americans now favor offshore drilling.
However, a number of regulatory and legislative hurdles remain to be cleared before access can be expanded to the energy resources the country so needs.
We are – yet again – at a crossroads in offshore energy policy. Understanding the path ahead requires looking at developments across a variety of arenas.
Legislative Branch
Despite calls from environmental activists to reinstate blanket bans on offshore exploration Congress does not seem inclined to reinstate broad bans on offshore energy activities. Nevertheless, a broader debate is under way in both the US House of Representatives and the US Senate about developing a comprehensive system of governing access to offshore.
For example, in the opening months of 2009, Chairman Nick Rahall (D-WV) and the House Natural Resources Committee held three hearings on OCS leasing policy. The first hearing featured testimony from environmental advocates, the second from coastal state interests, and the third from industry executives.
While each hearing brought a different perspective to the committee, the link between advanced technology and safety offshore was a shared theme in all three sessions. Committee members and witnesses discussed scientific data showing that production from offshore platforms is a negligible contributor to ocean oil spills while other factors, such as natural seepage and non-point sources, contribute the vast majority of the oil in our oceans. For the first time, both sides seemed willing to accept that industry is able to produce oil and natural gas safely and cleanly offshore.
Hearings on OCS oil and gas development continued in March when the issue was taken up by the Resources Subcommittee on Energy and Mineral Resources in a series of four hearings. Over on the other side of Capitol Hill, the Senate Committee on Energy & Natural Resources also held a hearing featuring Interior Secretary Ken Salazar.
In testimony on behalf of NOIA and a number of other national energy trade associations, I was given the opportunity to highlight some of the technological advancements by industry that allow offshore resources to be harnessed safely and cleanly. In addition, the testimony explained the science-based regulatory environment in which the industry operates, and how we consult with coastal states and conduct environmental reviews that span across various federal agencies. This all results in a multitude of permits and inspections required before any production can ever take place. The goal was to illustrate for lawmakers that the system as it currently stands already contains significant opportunities for public comment and a plethora of regulatory limitations on expanded exploration and production. Additional limits and rules are unnecessary and punitive.
Much of the discussion at that specific hearing and on Capitol Hill more broadly has been devoted to the diligent development of leases. To counter the assertion that industry is intentionally allowing leases to sit idle, it has been necessary to explain that responsibilities to shareholders and obligations to pay rental fees and return undeveloped leases to the government ensure that “Use It or Lose It” is already the law of the land. In short, there is no such thing as an “idle” lease.
The remainder of the House hearings have addressed ancillary issues, such as possible uses for OCS revenue streams, including renewable energy, coastal restoration, and the establishment of an ocean trust fund. Discussion also was held on the notion of ocean zoning and spatial planning, whereby certain commercial activities would be allowed or forbidden in predetermined offshore areas. Both witnesses and committee members from the Gulf region noted that multiple-use is the rule in their states, whereby energy development and other commercial activities, such as fishing, are able to co-exist and, in fact, thrive.
In the Senate hearing, Secretary Salazar continued to emphasize a comprehensive energy policy as the best way forward, while defending the Administration’s recent actions to pull back certain onshore leases and to extend the process for a new Five-Year OCS Plan.
It is unclear at this moment exactly how all the debate and hearings will morph into actual legislation. Nevertheless, the level of attention being paid to the outer continental shelf in the halls of Congress is high and likely will continue to be so for the remainder of the year.
Executive Branch
A significant amount of work also is ongoing in the agencies of the Executive Branch, particularly at the Department of the Interior. The Interior Department, of which Minerals Management Service is part, is in the midst of developing a new Five-Year Leasing Plan to cover the years 2010-2015.
This is important because none of the acreage that is now no longer off-limits for energy exploration can be leased until it is included in the Interior Department’s five-year OCS oil and gas leasing plan. In fact, just 13% of the 1.7 billion acres of OCS land is available for leasing consideration under the current 2007-2012 five-year plan.
The Bush Administration effectively handed the Obama Administration a two-year head start on the next five-year plan by initiating the planning process for a 2010-2015 five-year OCS plan. In January 2009, the Bush Administration published the 2010-2015 Draft Proposed Program, which proposed to conduct 31 OCS lease sales in 12 different planning areas around the country – including the North Atlantic, Middle Atlantic (includes Virginia and North Carolina), South Atlantic (includes South Carolina and Georgia), and Pacific (includes California). It has been decades since so much of the OCS has been included for consideration in a five-year OCS leasing plan.
On Feb. 10, 2009, Secretary Salazar extended the comment period on the Draft Proposed Program by 180 days. Salazar also tasked MMS and the US Geological Survey to produce a now-released report on the offshore resources and potential impacts, and to conduct four regional meetings in April 2009, one each for the Gulf Coast, Pacific Coast, Atlantic Coast, and Alaska. Secretary Salazar also asked for consideration of offshore renewable energy development as part of the Draft Proposed Plan comment period, which will close Sept. 21, 2009.
Another comment period and more public hearings will potentially occur in 2010 when the Proposed Plan and Draft Environmental Impact Statement (EIS) are made available for public review.
State-level activity
Not all of the policy decisions that affect the OCS and our industry’s access to its energy resources take place at the federal level. Significant work that has impacted the larger access picture has taken place in the last few years in various state legislatures and governors’ offices.
For instance, under the Gulf of Mexico Energy Security Act of 2006, states that support oil and natural gas production in the Gulf of Mexico receive 37.5% of the royalty revenues collected by the federal government for offshore oil and natural gas production. Interior Secretary Salazar recently announced the first of those revenue payments to the states of Texas, Louisiana, Mississippi, and Alabama for a total of $25 million. That amount is to be paid directly to the state treasuries and to counties and comes from 2007-08 bonus bids and rental payments.
Other states are taking notice. In fact, the Commonwealth of Virginia could receive over $165 million annually if it were to have equal treatment for production in its adjacent waters.
Not surprisingly, local and state government leaders seek passage of federal legislation to allow all state and coastal communities to receive a fair share of royalty revenues derived from oil and gas production adjacent to their coasts.
NOIA is reaching out to coastal states to help educate them on the benefits and potential impacts of offshore exploration and production. At a panel discussion on climate change hosted by the Virginia Manufacturing Association, NOIA described the five-year planning process, the status of the Virginia lease sale, and how it fits into the current five-year plan.
In April 2009, NOIA again spoke directly to Virginia’s leadership when we were invited by Lt. Governor Bill Bolling and Senator Frank Wagner to participate in discussion on offshore oil and gas supplies and the potential benefits of a royalty revenue sharing program for the state of Virginia.
In addition, NOIA has also met with the Maryland Department of Natural Resources to discuss the five-year OCS leasing process, and the potential impacts and benefits of potential leasing offshore the mid-Atlantic Planning Area. A portion of the OCS lands offshore Virginia are included in the current (2007-2012) OCS leasing plan as part of a special lease sale to take place in 2011, but it now appears that sale may be pushed into the next five-year plan, if it occurs at all.
Our work is intended to educate these and other states about the federal process and about the industry’s safety, environmental, and economic record so that each state can decide for itself whether offshore energy production is something that should factor into their overall jobs and revenue strategies.
