II

104TH CONGRESS

1ST SESSION S. 158

To provide for the energy security of the Nation through encouraging the

production of domestic oil and gas resources in deep water on the

Outer Continental Shelf in the Gulf of Mexico, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JANUARY 5, 1995

Mr. JOHNSTON introduced the following bill; which was read twice and

referred to the Committee on Energy and Natural Resources

A BILL

To provide for the energy security of the Nation through

encouraging the production of domestic oil and gas resources in deep water on the Outer Continental Shelf

in the Gulf of Mexico, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 That this Act may be referred to as the ‘‘Outer Continen4 tal Shelf Deep Water Royalty Relief Act’’.
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1 SEC. 2. AMENDMENTS TO THE OUTER CONTINENTAL

2 SHELF LANDS ACT.

3 Section 8(a) of the Outer Continental Shelf Lands

4 Act, (43 U.S.C. 1337 (a)(3)), is amended by striking para5 graph (3) in its entirety and inserting the following:

6 ‘‘(3)(A) The Secretary may, in order to—

7 ‘‘(i) promote development or increased pro8 duction on producing or non-producing leases;

9 or

10 ‘‘(ii) encourage production of marginal re11 sources on producing or non-producing leases;

12 through primary, secondary, or tertiary recovery

13 means, reduce or eliminate any royalty or net profit

14 share set forth in the lease(s). With the lessee’s con15 sent, the Secretary may make other modifications to

16 the royalty or net profit share terms of the lease in

17 order to achieve these purposes.

18 ‘‘(B)(i) Notwithstanding the provisions of this

19 Act other than this subparagraph, with respect to

20 any lease or unit in existence on the date of enact21 ment of the Outer Continental Shelf Deep Water

22 Royalty Relief Act meeting the requirements of this

23 subparagraph, no royalty payments shall be due on

24 new production, as defined in clause (iv) of this sub25 paragraph, from any lease or unit located in water

26 depths of 200 meters or greater in the Western and
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1 Central Planning Areas of the Gulf of Mexico, in2 cluding that portion of the Eastern Planning Area

3 of the Gulf of Mexico encompassing whole lease

4 blocks lying west of 87 degrees, 30 minutes West

5 longitude, until such volume of production as deter6 mined pursuant to clause (ii) has been produced by

7 the lessee.

8 (ii) Upon submission of a complete application

9 by the lessee, the Secretary shall determine within

10 180 days of such application whether new produc11 tion from such lease or unit would be economic in

12 the absence of the relief from the requirement to pay

13 royalties provided for by clause (i) of this subpara14 graph. In making such determination, the Secretary

15 shall consider the increase technological and finan16 cial risk of deep water development and all costs as17 sociated with exploring, developing, and producing

18 from the lease. The lessee shall provide information

19 required for a complete application to the Secretary

20 prior to such determination. The Secretary shall

21 clearly define the information required for a com22 plete application under this section. Such application

23 may be made on the basis of an individual lease or

24 unit. If the Secretary determines that such new pro25 duction would be economic in the absence of the re-
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1 lief from the requirement to pay royalties provided

2 for by clause (i) of this subparagraph, the provisions

3 of clause (i) shall not apply to such production. If

4 the Secretary determines that such new production

5 would not be economic in the absence of the relief

6 from the requirement to pay royalties provided for

7 by clause (i), the Secretary must determine the vol8 ume of production from the lease or unit on which

9 no royalties would be due in order to make such new

10 production economically viable; except that for new

11 production as defined in clause (iv)(I), in no case

12 will that volume be less than 17.5 million barrels of

13 oil equivalent in water depths of 200 to 400 meters,

14 52.5 million barrels of oil equivalent in 400–800 me15 ters of water, and 87.5 million barrels of oil equiva16 lent in water depths greater than 800 meters. Rede17 termination of the applicability of clause (i) shall be

18 undertaken by the Secretary when requested by the

19 lessee prior to the commencement of the new pro20 duction and upon significant change in the factors

21 upon which the original determination was made.

22 The Secretary shall make such redetermination with23 in 120 days of submission of a complete application.

24 The Secretary may extend the time period for mak25 ing any determination or redetermination under this
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1 clause for 30 days, or longer if agreed to by the ap2 plicant, if circumstances so warrant. The lessee shall

3 be notified in writing of any determination or rede4 termination and the reasons for and assumptions

5 used for such determination. Any determination or

6 redetermination under this clause shall be a final

7 agency action. The Secretary’s determination or re8 determination shall be judicially reviewable under

9 section 10(a) of the Administrative Procedures Act

10 (5 U.S.C. 702), only for actions filed within 30 days

11 of the Secretary’s determination or redetermination.

12 ‘‘(iii) In the event that the Secretary fails to

13 make the determination or redetermination called

14 for in clause (ii) upon application by the lessee with15 in the time period, together with any extension

16 thereof, provided for by clause (ii), no royalty pay17 ments shall be due on new production as follows:

18 ‘‘(I) For new production, as defined in

19 clause (iv)(I) of this subparagraph, no royalty

20 shall be due on such production according to

21 the schedule of minimum volumes specified in

22 clause (ii) of this subparagraph.

23 ‘‘(II) For new production, as defined in

24 clause (iv)(II) of this subparagraph, no royalty
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1 shall be due on such production for one year

2 following the start of such production.

3 ‘‘(iv) For purposes of this subparagraph, the

4 term ‘new production’ is—

5 (I) any production from a lease from which

6 no royalties are due on production, other than

7 test production, prior to the date of enactment

8 of the Outer Continental Shelf Deep Water

9 Royalty Relief Act; or

10 (II) any production resulting from lease

11 development activities pursuant to a Develop12 ment Operations Coordination Document, or

13 supplement thereto that would expand produc14 tion significantly beyond the level anticipated in

15 the Development Operations Coordination Doc16 ument, approved by the Secretary after the date

17 of enactment of the Outer Continental Shelf

18 Deep Water Royalty Relief Act.

19 ‘‘(v) During the production of volumes deter20 mined pursuant to clauses (ii) or (iii) of this sub21 paragraph, in any year during which the arithmetic

22 average of the closing prices on the New York Mer23 cantile Exchange for light sweet crude oil exceeds

24 $28 per barrel, any production of oil will be subject

25 to royalties at the lease stipulated royalty rate. Any
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1 production subject to this clause shall be counted to2 ward the production volume determined pursuant to

3 clause (ii) or (iii). Estimated royalty payments will

4 be made if such average of the closing prices for the

5 previous year exceeds $28. After the end of the cal6 endar year, when the new average price can be cal7 culated, lessees will pay any royalties due, with in8 terest but without penalty, or can apply for a re9 fund, with interest, of any overpayment.

10 ‘‘(vi) During the production of volumes deter11 mined pursuant to clause (ii) or (iii) of this subpara12 graph, in any year during which the arithmetic aver13 age of the closing prices on the New York Mer14 cantile Exchange for natural gas exceeds $3.50 per

15 million British thermal units, any production of nat16 ural gas will be subject to royalties at the lease stip17 ulated royalty rate. Any production subject to this

18 clause shall be counted toward the production vol19 ume determined pursuant to clauses (ii) or (iii). Es20 timated royalty payments will be made if such aver21 age of the closing prices for the previous year ex22 ceeds $3.50. After the end of the calendar year,

23 when the new average price can be calculated, les24 sees will pay any royalties due, with interest but
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1 without penalty, or can apply for a refund, with in2 terest, of any overpayment.

3 ‘‘(vii) The prices referred to in clauses (v) and

4 (vi) of this subparagraph shall be changed during

5 any calendar year after 1994 by the percentage, if

6 any, by which the implicit price deflator for the

7 gross domestic product changed during the preced8 ing calendar year.’’.

9 SEC. 3. NEW LEASES.

10 (a) Section 8(a)(1) of the Outer Continental Shelf

11 Lands Act, as amended (43 U.S.C. 1337 (a)(1)), is

12 amended as follows:

13 (1) Redesignate section 8(a)(1)(H) as section

14 8(a)(1)(I);

15 (2) Add a new section 8(a)(1)(H) as follows:

16 ‘‘(H) cash bonus bid with royalty at no less

than 121 17 ⁄2 per centum fixed by the Secretary in

18 amount or value of production saved, removed,

19 or sold, and with suspension of royalties for a

20 period, volume, or value of production deter21 mined by the Secretary. Such suspensions may

22 vary based on the price of production from the

23 lease.’’.

24 (b) For all tracts located in water depths of 200 me25 ters or greater in the Western and Central Planning Areas
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1 of the Gulf of Mexico including that portion of the Eastern

2 Planning Area of the Gulf of Mexico encompassing whole

3 lease blocks lying west of 87 degrees, 30 minutes West

4 longitude, any lease sale within five years of the date of

5 enactment of this Act, shall use the bidding system au6 thorized in section 8(a)(1)(H) of the Outer Continental

7 Shelf Lands Act, as amended by this Act, except that the

8 suspension of royalties shall be set at a volume of not less

9 than the following:

10 (1) 17.5 million barrels of oil equivalent for

11 leases in water depths of 200 to 400 meters;

12 (2) 52.5 million barrels of oil equivalent for

13 leases in 400 to 800 meters of water; and

14 (3) 87.5 million barrels of oil equivalent for

15 leases in water depths greater than 800 meters.

16 SEC. 4. REGULATIONS.

17 The Secretary shall promulgate such rules and regu18 lations as are necessary to implement the provisions of this

19 Act within 180 days after the enactment of this Act.

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