[Federal Register Volume 61, Number 109 (Wednesday, June 5, 1996)]
[Proposed Rules]
[Pages 28528-28530]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13989]



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DEPARTMENT OF THE INTERIOR
30 CFR Part 256

RIN 1010-AC15


Drilling Requirements for Outer Continental Shelf Leases

AGENCY: Minerals Management Service, Interior.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Minerals Management Service (MMS) proposes to amend its 
lease term regulations to remove the requirement that all lessees begin 
an exploratory well within the first 5 years of the primary term for 
new 8-year leases on the Outer Continental Shelf (OCS). MMS is 
proposing this change because recently enacted legislation provides 
more effective incentives to expedite lease development. A drilling 
requirement would apply when MMS stipulates a drilling requirement in 
the notice of sale.

DATES: MMS will consider all comments received by August 5, 1996. We 
will begin reviewing comments at that time and may not fully consider 
comments we receive after August 5, 1996.

ADDRESSES: Mail or hand-carry written comments to the Department of the 
Interior; Minerals Management Service; 381 Elden Street; Mail Stop 
4700; Herndon, Virginia 22070-4817; Attention: Chief, Engineering and 
Standards Branch.

FOR FURTHER INFORMATION CONTACT:
 Judith M. Wilson, Engineering and Standards Branch, telephone (703) 
787-1600.

SUPPLEMENTARY INFORMATION: Section 8(b) of the Outer Continental Shelf 
Lands Act (OCSLA), 43 U.S.C. 1331 et seq., as amended, 92 Stat. 629, 
states that an oil and gas lease is issued ``for an initial period of 
five years; or not to exceed ten years where the Secretary finds that 
such longer period is necessary to encourage exploration and 
development in areas because of unusually deep water * * *.'' 
Currently, MMS offers 10-year terms for leases in water depths of 900 
meters or more. In water depths of 400 to 900 meters, MMS offers 8-year 
lease terms

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subject to a requirement that the lessee begin an exploratory well 
within the first 5 years, 30 CFR 256.37.

    The OCSLA requires a lessee to be diligent in exploring and 
developing a lease. If production begins within the primary term, then 
the lease continues for as long as production continues, 30 CFR 
256.37(b). However, 5 years may not be adequate time in which to begin 
exploratory drilling even for a diligent lessee. Because of unusual 
circumstances such as deep water, the lessee risks losing a lease 
through no fault of its own.
    Due to the number of changes facing the oil and gas leasing 
program--such as lower oil prices, technological advances, subsalt 
discoveries and expansion to deeper waters--MMS initiated a review of 
OCS leasing policy several years ago. MMS found that the requirement 
that 8-year leases be drilled by the end of the fifth year did not 
result in meaningful increases in drilling. Most of the offered tracts 
were relinquished at the end of the fifth year. In particular, between 
1985 and 1992, 421 tracts were leased for 8-year terms. Only 29 of the 
421 leases had been drilled. Of those 29 leases, only 18 were still 
active by the end of 1993.
    With the enactment of the OCS Deep Water Royalty Relief Act 
(DWRRA), P.L. 104-58, new deepwater leases are offered for sale with 
available royalty volume suspensions. Royalty volume suspensions are 
available for new fields in at least 200 meters of water and lying west 
of 87 degrees, 30 minutes West longitude. Royalty payments on volumes 
of production are suspended for at least the first 17.5 million barrels 
of oil equivalent (mmboe) in 200 to 400 meters of water; 52.5 mmboe in 
400 to 800 meters; and 87.5 mmboe in more than 800 meters of water. MMS 
views this significant financial incentive as more effective than the 
drilling requirement as a means of achieving earlier drilling. In 
addition, the rental rates for all leases lying in waters deeper than 
200 meters may be increased (e.g., they were increased from $5.00 to 
$7.50/acre in Sale 157) to encourage earlier drilling.
    Therefore, MMS proposes to amend its regulation at 30 CFR 256.37 to 
remove the requirement that the lessee must begin drilling within 5 
years on 8-year leases issued on or after the date this rule becomes 
final. The amendment would also change the 400 to 900 meter depth 
requirement for 8-year leases to 400 to 800 meters to be consistent 
with the DWRRA.

    Author: This document was prepared by Judy Wilson, Engineering 
and Standards Branch, and Mary Vavrina, Offshore Resource Evaluation 
Division, MMS.

Executive Order (E.O.) 12866

    This rule is not a significant rule requiring Office of Management 
and Budget review under E.O. 12866.

Regulatory Flexibility Act

    The Department of the Interior (DOI) has determined that this 
proposed rule will not have a significant effect on a substantial 
number of small entities. Most entities that engage in offshore 
activities as operators are not small because of the technical and 
financial resources and experience necessary to conduct offshore 
activities. Small entities are more likely to operate onshore or in 
State waters--areas not covered by the proposed regulation. When small 
entities work in the OCS, they are more likely to be contractors rather 
than operators. For example, a company that collects geologic and 
geophysical data might be a small entity. While these contractors must 
follow rules governing OCS operations, we are not changing the rules 
that govern the actual operations of a lease. We are only proposing to 
modify the rules that govern the length of time required for drilling 
an exploratory well. The rule could have a positive secondary effect. 
By extending the time available to begin drilling an exploratory well 
in unusual circumstances, more leases may be active and this could 
result in an increase in opportunities for small entities to perform 
services. The added time could also work to benefit small companies who 
have slower computers and could benefit from a longer period of time to 
review data.

Paperwork Reduction Act

    The proposed rule does not contain new information collection 
requirements that require approval by the Office of Management and 
Budget (OMB). The information collection requirements in 30 CFR part 
256 are approved by OMB under approval No. 1010-0006.

Takings Implication Assessment

    The DOI certifies that this rule does not represent a governmental 
action capable of interference with constitutionally protected property 
rights. A Takings Implication Assessment prepared pursuant to E.O. 
12630, Government Action and Interference with Constitutionally 
Protected Property Rights, is not required.

Unfunded Mandate Reform Act of 1995

    This rule does not contain any unfunded mandates to State, local, 
or tribal governments or the private sector.

E.O. 12988

    The DOI has certified to OMB that this proposed rule meets the 
applicable civil justice reform standards provided in Sections 3(b)(2) 
of E.O. 12988.

National Environmental Policy Act

    MMS has examined the proposed rulemaking and has determined that 
this rule does not constitute a major Federal action significantly 
affecting the quality of the human environment pursuant to Section 
102(2)(c) of the National Environmental Policy Act of 1969 (42 U.S.C. 
4332(2)(c)).

List of Subjects in 30 CFR Part 256

    Administrative practice and procedures, Continental shelf, 
Environmental Protection, Government contracts, Mineral royalties, Oil 
and gas exploration, Pipelines, Public lands--mineral resources, Public 
lands--rights-of-way, Reporting and recordkeeping requirements, Surety 
bonds.

Bob Armstrong,
Assistant Secretary, Land and Minerals Management.

    For the reasons set forth in the preamble, the Minerals Management 
Service proposes to amend 30 CFR parts 256 as follows:

PART 256-LEASING OF SULPHUR OR OIL OR GAS IN THE OUTER CONTINENTAL 
SHELF

    1. The authority citation for part 256 continues to read as 
follows:

    Authority: 43 U.S.C. 1331 et seq.

    2. In Sec. 256.37, paragraph (a)(2) is revised to read as follows:


Sec. 256.37  Lease term.

    (a)(1) * * *
    (2) If your oil and gas lease is in water depths of 400 meters or 
more, it will have an initial lease term of at least 8 years but not 
more than 10 years. The initial term for each lease will be stated in 
the Final Notice of Sale.
    (i) For leases issued before [the effective date of the final 
rule], you must commence an exploratory well within the first 5 years 
of the initial 8-year term or MMS will cancel the lease.
    (ii) For leases issued on or after [the effective date of the final 
rule], MMS will incorporate into the lease terms by

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lease stipulation any drilling requirements.
* * * * *
[FR Doc. 96-13989 Filed 6-4-96; 8:45 am]
BILLING CODE 4310-MR-M