Beveridge & Diamond
 

Congress Lifts Offshore Leasing Ban

Has the Way Been Cleared for Oil & Gas Development on the Outer Continental Shelf?
Beveridge & Diamond, P.C., October 8, 2008

On September 30, 2008, Congress allowed a long-standing ban on offshore oil and gas leasing to expire, clearing a major obstacle to development of large portions of the Outer Continental Shelf (“OCS”) previously off-limits.  The removal of this legislative ban came just months after President Bush lifted an executive ban on offshore leasing in response to record prices at the pump.  In the wake of this recent activity, certain Congressional Democrats are already vowing to consider restoring portions of the leasing ban next year, setting the stage for offshore leasing to become a major issue in the upcoming election.

The OCS consists of submerged lands and seabed extending beyond near-shore state-controlled waters.  The Minerals Management Service (“MMS”), a subagency of the Department of the Interior, is responsible for leasing, development, and operations on the OCS and the federal government has been leasing the OCS for oil and gas development since 1953.  But in response to damaging drilling practices and oil spills, Congress banned oil and gas leasing off the California coast in 1981 and, four years later, extended that ban to cover most of the West Coast, all of the East Coast, and portions of the Gulf of Mexico.  Every year from 1981 to 2007 Congress re-approved the ban as part of the annual appropriations process, and at its peak, approximately 85% of the OCS was off-limits to leasing.  In 1990, President George H.W. Bush issued a presidential directive withdrawing new areas from offshore leasing, a restriction that essentially overlapped with the legislative ban, and in 1998, President Clinton extended this restriction through 2012.

However, Congressional and Executive actions in the past few years have foreshadowed a change in our Nation’s approach to offshore oil and gas development.  The 2005 Energy Policy Act included authorization of an inventory of all OCS areas suitable for oil and gas leasing while the 2006 Gulf of Mexico Energy Security Act opened up more than 8 million acres of the OCS to new leasing.  This past July, President Bush lifted the executive ban on leasing and has since repeatedly urged Congress to lift the legislative ban, arguing that Congress was allowing skyrocketing oil prices to harm the U.S. economy and that new drilling technologies left little impact on the environment.  And this Summer, Interior Secretary Kempthorne initiated the process for the preparation of a new 5-year program — a prerequisite for new leasing on the OCS — for 2010-2015.

As polls conducted this past Summer showed increasing public support for offshore leasing in the wake of record oil prices, Congressional Republicans and the White House challenged the continuing viability of the legislative ban on leasing.  In particular, 155 House Republicans and 49 Senate Republicans pledged to fight any effort to continue the ban.  In light of this entrenched opposition and increasing public support for offshore leasing, Congressional Democrats capitulated to demands to let the ban lapse.  For the first time since 1980, when President Bush signed the appropriations bill last week, it did not contain the leasing ban.

Lapse of the ban means that all of the OCS except for portions within 125 miles of Florida’s gulf shores are now open to being leased.  MMS estimates that the OCS may contain more than 18 billion barrels of oil and 76 trillion cubic feet of natural gas.  However, there is a long way to go before drilling can commence on newly-opened portions of the OCS.  Under federal law, a 5-year program must first be in place before lease sales can occur, and the development of such a program is in itself a multi-year process that just got underway this Summer.  Once the 5-year program is complete, MMS will hold a competitive lease sale.  Successful bidders must then comply with complex exploration and development plan approval processes, which include the opportunity for state review and participation, before beginning to drill.  From the date of lease issuance, it can take up to ten years before drilling begins, and not all leases yield oil or gas production.  

Moreover, there is no guarantee that lease sales for new areas will occur.  Certain Democrats and environmental groups have already let it be known that they will not let the ban slip quietly into the night.  “This battle is not over.  We will come back and fight another day -- that’s for sure,” said Sen. Dianne Feinstein (D-Calif.), chairwoman of the Senate Appropriations Committee panel that oversees Interior Department spending, while Democratic presidential nominee Barack Obama has criticized the idea of increased drilling on the OCS.  On the other hand, GOP rival John McCain has made support for new drilling a major theme in his White House bid, meaning that the upcoming election may well decide the future of this Nation’s offshore drilling policy for years to come.

If you would like further information or to discuss the implications of this recent activity in more detail, please contact Peter Schaumberg at 202-789-6043 or pschaumberg@bdlaw.com, Fred Wagner at 202-789-6041 or fwagner@bdlaw.com, or Bill Sinclair at 410-230-1354 or wsinclair@bdlaw.com.     

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