Outer Continental Shelf Deep Water Royalty Relief Act

Summary: Outer Continental Shelf Deep Water Royalty Relief Act - Amends the Outer Continental Shelf Lands Act to authorize the Secretary of the Interior to reduce or eliminate any royalty or net profit share set forth in existing leases, before commencement of production, for oil or gas resources in deep water on the Outer Continental Shelf in the Gulf of Mexico. 
Declares that no royalty payments shall be due on new production from any lease or unit located in specified water depths in the Western and Central Planning Areas of the Gulf until certain volumes of oil equivalent are produced. 
Suspends royalties for a five-year period for new leases in specified water depths in the Gulf.

That this Act may be 
referred to as the ``Outer Continental Shelf Deep Water Royalty Relief 
Act''.

SEC. 2. AMENDMENTS TO THE OUTER CONTINENTAL SHELF LANDS ACT.

    Section 8(a) of the Outer Continental Shelf Lands Act, (43 U.S.C. 
1337 (a)(3)), is amended by striking paragraph (3) in its entirety and 
inserting the following:
            ``(3)(A) The Secretary may, in order to--
                    ``(i) promote development or increased production 
                on producing or non-producing leases; or
                    ``(ii) encourage production of marginal resources 
                on producing or non-producing leases;
        through primary, secondary, or tertiary recovery means, reduce 
        or eliminate any royalty or net profit share set forth in the 
        lease(s). With the lessee's consent, the Secretary may make 
        other modifications to the royalty or net profit share terms of 
        the lease in order to achieve these purposes.
            ``(B)(i) Notwithstanding the provisions of this Act other 
        than this subparagraph, with respect to any lease or unit in 
        existence on the date of enactment of the Outer Continental 
        Shelf Deep Water Royalty Relief Act meeting the requirements of 
        this subparagraph, no royalty payments shall be due on new 
        production, as defined in clause (iv) of this subparagraph, 
        from any lease or unit located in water depths of 200 meters or 
        greater in the Western and Central Planning Areas of the Gulf 
        of Mexico, including that portion of the Eastern Planning Area 
        of the Gulf of Mexico encompassing whole lease blocks lying 
        west of 87 degrees, 30 minutes West longitude, until such 
        volume of production as determined pursuant to clause (ii) has 
        been produced by the lessee.
            (ii) Upon submission of a complete application by the 
        lessee, the Secretary shall determine within 180 days of such 
        application whether new production from such lease or unit 
        would be economic in the absence of the relief from the 
        requirement to pay royalties provided for by clause (i) of this 
        subparagraph. In making such determination, the Secretary shall 
        consider the increase technological and financial risk of deep 
        water development and all costs associated with exploring, 
        developing, and producing from the lease. The lessee shall 
        provide information required for a complete application to the 
        Secretary prior to such determination. The Secretary shall 
        clearly define the information required for a complete 
        application under this section. Such application may be made on 
        the basis of an individual lease or unit. If the Secretary 
        determines that such new production would be economic in the 
        absence of the relief from the requirement to pay royalties 
        provided for by clause (i) of this subparagraph, the provisions 
        of clause (i) shall not apply to such production. If the 
        Secretary determines that such new production would not be 
        economic in the absence of the relief from the requirement to 
        pay royalties provided for by clause (i), the Secretary must 
        determine the volume of production from the lease or unit on 
        which no royalties would be due in order to make such new 
        production economically viable; except that for new production 
        as defined in clause (iv)(I), in no case will that volume be 
        less than 17.5 million barrels of oil equivalent in water 
        depths of 200 to 400 meters, 52.5 million barrels of oil 
        equivalent in 400-800 meters of water, and 87.5 million barrels 
        of oil equivalent in water depths greater than 800 meters. 
        Redetermination of the applicability of clause (i) shall be 
        undertaken by the Secretary when requested by the lessee prior 
        to the commencement of the new production and upon significant 
        change in the factors upon which the original determination was 
        made. The Secretary shall make such redetermination within 120 
days of submission of a complete application. The Secretary may extend 
the time period for making any determination or redetermination under 
this clause for 30 days, or longer if agreed to by the applicant, if 
circumstances so warrant. The lessee shall be notified in writing of 
any determination or redetermination and the reasons for and 
assumptions used for such determination. Any determination or 
redetermination under this clause shall be a final agency action. The 
Secretary's determination or redetermination shall be judicially 
reviewable under section 10(a) of the Administrative Procedures Act (5 
U.S.C. 702), only for actions filed within 30 days of the Secretary's 
determination or redetermination.
            ``(iii) In the event that the Secretary fails to make the 
        determination or redetermination called for in clause (ii) upon 
        application by the lessee within the time period, together with 
        any extension thereof, provided for by clause (ii), no royalty 
        payments shall be due on new production as follows:
                    ``(I) For new production, as defined in clause 
                (iv)(I) of this subparagraph, no royalty shall be due 
                on such production according to the schedule of minimum 
                volumes specified in clause (ii) of this subparagraph.
                    ``(II) For new production, as defined in clause 
                (iv)(II) of this subparagraph, no royalty shall be due 
                on such production for one year following the start of 
                such production.
            ``(iv) For purposes of this subparagraph, the term `new 
        production' is--
                    (I) any production from a lease from which no 
                royalties are due on production, other than test 
                production, prior to the date of enactment of the Outer 
                Continental Shelf Deep Water Royalty Relief Act; or
                    (II) any production resulting from lease 
                development activities pursuant to a Development 
                Operations Coordination Document, or supplement thereto 
                that would expand production significantly beyond the 
                level anticipated in the Development Operations 
                Coordination Document, approved by the Secretary after 
                the date of enactment of the Outer Continental Shelf 
                Deep Water Royalty Relief Act.
            ``(v) During the production of volumes determined pursuant 
        to clauses (ii) or (iii) of this subparagraph, in any year 
        during which the arithmetic average of the closing prices on 
        the New York Mercantile Exchange for light sweet crude oil 
        exceeds $28 per barrel, any production of oil will be subject 
        to royalties at the lease stipulated royalty rate. Any 
        production subject to this clause shall be counted toward the 
        production volume determined pursuant to clause (ii) or (iii). 
        Estimated royalty payments will be made if such average of the 
        closing prices for the previous year exceeds $28. After the end 
        of the calendar year, when the new average price can be 
        calculated, lessees will pay any royalties due, with interest 
but without penalty, or can apply for a refund, with interest, of any 
overpayment.
            ``(vi) During the production of volumes determined pursuant 
        to clause (ii) or (iii) of this subparagraph, in any year 
        during which the arithmetic average of the closing prices on 
        the New York Mercantile Exchange for natural gas exceeds $3.50 
        per million British thermal units, any production of natural 
        gas will be subject to royalties at the lease stipulated 
        royalty rate. Any production subject to this clause shall be 
        counted toward the production volume determined pursuant to 
        clauses (ii) or (iii). Estimated royalty payments will be made 
        if such average of the closing prices for the previous year 
        exceeds $3.50. After the end of the calendar year, when the new 
        average price can be calculated, lessees will pay any royalties 
        due, with interest but without penalty, or can apply for a 
        refund, with interest, of any overpayment.
            ``(vii) The prices referred to in clauses (v) and (vi) of 
        this subparagraph shall be changed during any calendar year 
        after 1994 by the percentage, if any, by which the implicit 
        price deflator for the gross domestic product changed during 
        the preceding calendar year.''.

SEC. 3. NEW LEASES.

    (a) Section 8(a)(1) of the Outer Continental Shelf Lands Act, as 
amended (43 U.S.C. 1337 (a)(1)), is amended as follows:
            (1) Redesignate section 8(a)(1)(H) as section 8(a)(1)(I);
            (2) Add a new section 8(a)(1)(H) as follows:
                    ``(H) cash bonus bid with royalty at no less than 
                12\1/2\ per centum fixed by the Secretary in amount or 
                value of production saved, removed, or sold, and with 
                suspension of royalties for a period, volume, or value 
                of production determined by the Secretary. Such 
                suspensions may vary based on the price of production 
                from the lease.''.
    (b) For all tracts located in water depths of 200 meters or greater 
in the Western and Central Planning Areas of the Gulf of Mexico 
including that portion of the Eastern Planning Area of the Gulf of 
Mexico encompassing whole lease blocks lying west of 87 degrees, 30 
minutes West longitude, any lease sale within five years of the date of 
enactment of this Act, shall use the bidding system authorized in 
section 8(a)(1)(H) of the Outer Continental Shelf Lands Act, as amended 
by this Act, except that the suspension of royalties shall be set at a 
volume of not less than the following:
            (1) 17.5 million barrels of oil equivalent for leases in 
        water depths of 200 to 400 meters;
            (2) 52.5 million barrels of oil equivalent for leases in 
        400 to 800 meters of water; and
            (3) 87.5 million barrels of oil equivalent for leases in 
        water depths greater than 800 meters.

SEC. 4. REGULATIONS.

    The Secretary shall promulgate such rules and regulations as are 
necessary to implement the provisions of this Act within 180 days after 
the enactment of this Act.