Ocean Energy Agency Appropriations, FY2017
Released: 2017-03-13T00:00:00

T hree agencies in the Department of the Interior (DOI) share responsibility for managing the nation's ocean energy resources, which cover approximately 1.7 billion acres on the U.S. outer continental shelf (OCS). The Bureau of Ocean Energy Management (BOEM) administers offshore energy leasing; the Bureau of Safety and Environmental Enforcement (BSEE) oversees offshore operational safety and environmental responsibility; and the Office of Natural Resources Revenue (ONRR) manages public revenues from federally regulated offshore and onshore energy projects. BOEM, BSEE, and ONRR receive appropriations in the annual Interior, Environment, and Related Agencies appropriations bill. Aggregate and program-level appropriations shape the resources available to the agencies for conventional and renewable energy leasing, inspections, spill preparedness, environmental enforcement, planning, research, and revenue collection and disbursement, among others.

This report discusses FY2017 appropriations for the three agencies, including the Obama Administration's funding request for each agency and subsequent congressional action. The 114 th Congress did not enact full-year Interior appropriations for FY2017. Continuing funds were provided through April 28, 2017, by two continuing resolutions (CRs; P.L. 114-223 and P.L. 114-254 ). The CRs generally provide funding at the FY2016 level, minus an across-the-board reduction of less than 1%. The 115 th Congress is faced with addressing the ocean energy agencies' appropriations for the remainder of FY2017.

Bureau of Ocean Energy Management3

BOEM manages U.S. offshore oil and gas leasing, renewable energy development, and marine mineral leasing, with a mission to balance national interests in energy supply and environmental protection. BOEM's responsibilities include developing a five-year offshore oil and gas leasing program, managing oil and gas lease sales and marine mineral agreements, reviewing exploration and development plans, facilitating renewable energy development on the OCS, conducting resource evaluations and economic analysis, and performing environmental reviews, among others.

BOEM's operations are funded both by discretionary appropriations under the agency's Ocean Energy Management account and by the authority to expend offsetting collections derived from a portion of OCS rental receipts and cost recovery fees. The initial discretionary appropriation for each fiscal year is reduced by the amount of eligible receipts and fees that are collected, so that the final amount appropriated to BOEM is the net of those collections.

For FY2017, the Obama Administration requested total appropriations of $175.1 million for BOEM, of which $94.9 million would be derived from offsetting collections, for a net appropriation of $80.2 million ( Table 1 ). BOEM's total available funding under the request would be $4.3 million higher (+2.5%) than the FY2016 total. This reflects an increase of $6.0 million (+8.0%) in BOEM's net requested appropriation from Congress, along with BOEM's estimate of fewer offsetting collections than in FY2016 (1.7% less in offsetting collections).

On July 14, 2016, the House passed its Interior appropriations bill, H.R. 5538 , with total appropriations of $169.3 million for BOEM, offset by the rental receipt and fee collections described above, for a net appropriation of $74.4 million. The House's total appropriation was $1.6 million less than the FY2016 enacted total and $5.8 million less than the Obama Administration's request. Comparing the net appropriations after offsets, the House's amount was $0.1 million more than the FY2016 enacted net appropriation and $5.8 million less than the request.

On June 16, 2016, the Senate Appropriations Committee reported its Interior appropriations bill, S. 3068 . The Senate committee bill contained total appropriations of $169.6 million for BOEM, offset by the rental receipt and fee collections described above, for a net appropriation of $74.6 million. The total appropriation was $1.3 million less than the FY2016 enacted total and $5.6 million less than the Obama Administration's request. Comparing the net appropriations after offsets, the Senate committee amount was $0.4 million more than the FY2016 enacted net appropriation and $5.6 million less than the request.

The 114 th Congress did not enact full-year Interior appropriations for FY2017, and continuing funds were provided through April 28, 2017, under the CRs ( P.L. 114-223 and P.L. 114-254 ). The CRs generally provide funding at the FY2016 level, minus an across-the-board reduction of less than 1%.

BOEM Budget Accounts

BOEM's appropriations are contained in a single budget account, titled Ocean Energy Management. Within this account, the Conventional Energy budget activity funds development and administration of the agency's oil and gas leasing program, including the development of forward-looking five-year leasing plans. In November 2016, BOEM published its oil and gas leasing program for 2017-2022, which includes 1 lease sale in the Alaska region and 10 sales in the Gulf of Mexico. Appropriations for the Conventional Energy activity also go toward BOEM's administration of lease sales under the current oil and gas leasing program for 2012-2017. Other BOEM Conventional Energy activities include managing existing leases, reviewing exploration and development/production plans, administering risk management and financial responsibility programs, evaluating ocean resources, mapping the OCS, and administering the Marine Minerals Program, among others.

A different budget activity under the Ocean Energy Management account, the Renewable Energy activity, supports BOEM's management of renewable ocean energy resources under Section 388 of P.L. 109-58 , the Energy Policy Act of 2005. Under this activity, BOEM has planned and conducted wind energy lease sales in the Atlantic and has issued 12 commercial wind energy leases offshore (in Delaware, Maryland, Massachusetts, New Jersey, New York, Rhode Island, and Virginia). The Block Island Wind Farm off of Rhode Island began regular operations in December 2016, marking the first commercial wind production in U.S. waters. BOEM has identified wind, wave, and ocean current energy as offering the greatest potential among renewables for OCS development in the foreseeable future, and it has issued research leases and grants for hydrokinetic energy research and testing projects under the Renewable Energy activity. Other responsibilities include data collection and stakeholder engagement related to renewable energy efforts.

BOEM's Environmental Assessment budget activity (referred to in agency budget documents as Environmental Programs) supports BOEM's responsibilities for assessing the environmental impacts of ocean energy activities and providing environmental safeguards. BOEM coordinates with BSEE in managing OCS environmental programs. Under the National Environmental Policy Act of 1969 (NEPA), as well as the Outer Continental Shelf Lands Act (OCSLA) and other statutes, BOEM must conduct environmental assessments of proposed ocean activities such as geological and geophysical (G&G) exploration, five-year leasing programs, lease sales, exploration plans, and development and production plans. For example, BOEM studied the environmental impacts of G&G seismic surveys in the Atlantic Ocean and approved such surveys in summer 2014. This budget activity also supports BOEM's collaboration with other research agencies to develop scientific knowledge of the OCS.

BOEM's Executive Direction budget activity covers the agency's executive offices, such as the Office of the Director, the Office of Congressional Affairs, and others.

Proposed BOEM Budgetary Changes

The Obama Administration's FY2017 budget request for BOEM proposed funding changes in several areas. Some of the changes related to the agency's offsetting collections, which consist of a portion of OCS rental receipts and cost recovery fees that the agency is authorized to spend. BOEM anticipated an 11% ($4.5 million) decline in its offsetting rental receipts for FY2017, as compared with FY2016. BOEM attributed the anticipated decline to multiple factors, including a reduction in the number of leases being sold in the Gulf of Mexico because the area is maturing and because of the decline in world oil prices, as well as changes in lease terms and a resulting increase in lease relinquishments. Because "this decline in rental receipts is not meaningfully correlated to BOEM's workload," the agency requested that Congress provide direct appropriations of $4.1 million to offset the reduced rental receipts. BOEM further stated that "the projected decline in offsetting rental receipts is expected to continue to present a significant fiscal challenge in the coming years." In addition to requesting direct appropriations from Congress to make up for the projected reduction, the Obama Administration proposed to change the proportion of offsetting rental receipts that go to BOEM and BSEE. Whereas in earlier years BOEM received 65% of the offsetting rental receipts and BSEE 35%, the proposal for FY2017 was for BOEM to receive 70% and BSEE 30%.

Separately, BOEM also anticipated a net reduction of $99,000 in its existing cost recovery fees for FY2017. However, BOEM proposed a new cost recovery fee for costs associated with the agency's Risk Management Program. BOEM estimated that this new fee would bring in revenues of $2.9 million for FY2017, so that the agency would have an overall gain of $2.8 million in cost recovery fees. The monies from the new fee would be used to fund continued implementation of the Risk Management Program, including adding staff with specializations in risk assessment and management.

Both the House-passed and the Senate committee-reported bills reflected BOEM's anticipated changes to its offsetting collections, including BOEM's estimated reductions in rental receipts and cost recovery fees, its proposed new fee associated with the Risk Management Program, and the change in the proportion of offsetting rental receipts that would go to BOEM and BSEE. However, neither bill provided the level of direct appropriations that the agency had requested to make up for the reduction in offsetting collections.

Apart from the changes to offsetting collections, BOEM proposed a number of other funding changes for FY2017:

An increase of $1.6 million in the Conventional Energy budget activity to fund special pay authority to attract and retain skilled geophysicists, geologists, and petroleum engineers. The pay rates would accord with special salary rate tables issued for these positions by the Office of Personnel Management (OPM). An increase of $0.9 million across two budget activities (Conventional Energy and Environmental Assessment) for additional staffing. The agency stated that staffing increase was needed to accommodate a growth in the number of deepwater drilling plans BOEM must review and regulatory changes that add to the workload of the plan review process. An increase of $0.2 million across all activities for fixed costs, which are non-programmatic, mandatory costs such as those for employee pay and benefits, workers' compensation, and rent to the General Services Administration. A decrease of $0.4 million in funding for methane hydrate research under the Conventional Energy budget activity to accommodate the higher pay for skilled positions described above. A decrease of $0.4 million for data collection and outreach under the Renewable Energy budget activity, also to accommodate the higher pay for skilled positions described above.

The House-passed and Senate committee-reported bills would have provided BOEM with less money in direct appropriations than the agency had requested. The House bill contained lower-than-requested totals for all of four of BOEM's budget activities (Renewable Energy, Conventional Energy, Environmental Assessment, and Executive Direction). The House Appropriations Committee did not specify in its report on the bill whether the specific requested increases were to be funded out of available totals. The Senate committee bill contained BOEM's requested amount for one budget activity—Renewable Energy—and less than requested for the other activities. For the Conventional Energy budget activity, the committee report stated that "the Committee concurs with the agency proposed reductions" but did not comment on the agency's requested increases.

Bureau of Safety and Environmental Enforcement25

BSEE provides oversight of oil and gas exploration, development, and production on the OCS. Its mission is to promote safety, protect the environment, and conserve resources offshore through regulatory oversight and enforcement. BSEE's functions include issuing permits for oil and gas operations, inspecting facilities, developing regulations and standards, conducting research and collecting data on offshore safety, assessing technology, and overseeing industry oil spill prevention and readiness activities, among other responsibilities.

Similar to BOEM, BSEE's operations are funded both by discretionary appropriations under the agency's Offshore Safety and Environmental Enforcement and Oil Spill Research accounts and by a portion of OCS rental receipts, cost recovery fees, and inspection fees, which are treated as offsetting collections in the BSEE budget.

For FY2017, the Obama Administration requested total appropriations of $204.9 million for BSEE, of which $108.5 million would be derived from offsetting collections of OCS rental receipts, cost recovery fees, and inspection fees, for a net appropriation of $96.3 million (see Table 2 ). The total request was nearly level with the FY2016 enacted total, but because of an estimated drop in offsetting collections, the requested net appropriation was $7.9 million higher (+8.9%) than the FY2016 enacted net amount of $88.5 million.

The House Interior appropriations bill, H.R. 5538 , contained total appropriations of $204.9 million for BSEE, offset by rental receipt and fee collections of $96.5 million. The bill also included a rescission of $20.0 million in unobligated balances, which functions as an offset to the total, yielding a net appropriation of $88.3 million. The House's total appropriation for BSEE was $0.2 million more than the FY2016 enacted total and the same as the Obama Administration's FY2016 request. Although the House's total BSEE appropriation was the same as the request, because of different estimations of offsets, its net appropriation was $8.0 million less th an the agency's request and $0.1 million less than the FY2016 enacted net appropriation.

The Senate Appropriations Committee's Interior appropriations bill, S. 3068 , contained total appropriations of $204.7 million for BSEE, offset by rental receipt and fee collections of $96.5 million, as well as a $25 million rescission of unobligated balances, for a net appropriation of $83.1 million. The Senate Committee's total appropriation was the same as the FY2016 enacted total and $0.2 million less than the Obama Administration's request. The committee's net appropriation, after offsets, was $5.3 million less than the FY2016 enacted net appropriation and $13.2 million less than the request, reflecting different estimations of offsetting collections.

The 114 th Congress did not enact full-year Interior appropriations for FY2017, and continuing funds were provided through April 28, 2017, under the CRs ( P.L. 114-223 and P.L. 114-254 ). The CRs generally provide funding at the FY2016 level, minus an across-the-board reduction of less than 1%.

BSEE Budget Accounts

BSEE's funding is appropriated under two budget accounts, Offshore Safety and Environmental Enforcement (OSEE) and Oil Spill Research. Under the OSEE account, the Operations, Safety, and Regulation (OSR) activity supports the agency's development of regulations and safety standards, review and approval of OCS operating permits, inspections of facilities and equipment, oversight of operators' Safety and Environmental Management Systems (SEMS) programs, real-time monitoring of oil and gas drilling, and evaluation of emerging technologies, among other activities. Under this activity, BSEE in July 2016 coordinated with BOEM to issue final safety regulations for Arctic exploratory drilling, and in April 2016, BSEE issued final regulations for blowout prevention systems and well control.

Also under the OSEE account, the Environmental Enforcement activity supports BSEE's own compliance with NEPA and other environmental statutes, as well as the agency's oversight and enforcement of environmental compliance by operators on the OCS. The program has pursued more than 200 cases of environmental violations since late 2011.

The activities for Administrative Operations and Executive Direction, which are also within the OSEE account, support a range of administrative services as well as BSEE's executive offices.

A separate BSEE budget account is for Oil Spill Research. This account funds research and planning for oil spill responses, as well as oversight of operators' spill response plans. It also supports Ohmsett, the National Oil Spill Response Research and Renewable Energy Test Facility.

Proposed BSEE Budgetary Changes

Like BOEM, BSEE anticipated changes to its offsetting collections for FY2017. The agency estimated a drop of $11.5 million in rental receipts for FY2017 as compared to the previous year's collections. BSEE estimated lower cost recovery fees as well (-$2.2 million). The agency estimated an increase of $6.0 million in anticipated inspection fees, based on its proposal for legislative changes to authorize the agency to charge additional fees for repeat visits to certain OCS facilities. However, neither the House nor the Senate Appropriations Committee included this new authorization in its bill, and the committees estimated $12.0 million less in FY2017 inspection fee collections for BSEE than the agency had suggested. Neither bill provided the level of direct appropriations requested by BSEE to address the estimated shortfall in offsetting collections. Both bills included rescissions of unobligated prior-year balances, which function as offsets to the funding in the Interior appropriations bill for the fiscal year in which they are enacted, as discussed above.

Separate from the estimated changes to offsetting collections, BSEE proposed other funding changes in its OSEE account, including the following:

An increase of $0.5 million across four budget activities (Environmental Enforcement, OSR, Administrative Operations, and Executive Direction) for projected growth in fixed costs such as rent, salaries, and information technology. A decrease of $0.3 million across four budget activities (Environmental Enforcement, OSR, Administrative Operations, and Executive Direction), to be achieved through administrative savings efforts and implementation of new program management models.

BSEE, like BOEM, proposed to increase pay levels for certain skilled professionals, as authorized in August 2015 changes to OPM special salary tables. BSEE stated that base funding would be used to support the revised pay rates, resulting in no change to the OSR appropriation from the FY2016 enacted level.

The House-passed and Senate committee-reported bills for the most part reflected BSEE's proposed changes, except for those concerning offsetting collections, as discussed above. Additionally, the Senate bill did not reflect BSEE's proposed changes for the OSR account and instead would have provided the same as the FY2016 enacted level.

Office of Natural Resources Revenue36

ONRR was established under the DOI Office of the Assistant Secretary for Policy, Management, and Budget to collect, account for, analyze, audit, and disburse revenues from energy and mineral leases on the OCS as well as on federal onshore and American Indian lands.

With regard to its disbursement function, in FY2016 ONRR disbursed $6.3 billion in revenues from mineral leases on federal and Indian lands, down from $9.9 billion in FY2015 and $13.4 billion in FY2014. Of the FY2016 total, approximately $2.8 billion came from leasing and production activity on the OCS. The revenue amounts disbursed fluctuate annually, based primarily on the prices of oil and natural gas, and have averaged about $10 billion per year for onshore and offshore production combined over the last five years (FY2012-FY2016). Sources of ONRR receipts include royalties, bonus bids, and rents for all leasable minerals including oil, natural gas, coal, and others.

ONRR distributes revenues under various authorities. Revenues from onshore leases are disbursed to the states in which they were collected, the General Fund of the U.S. Treasury, and the Reclamation Fund based on various statutory formulas. Revenues from offshore leases are allocated among coastal states, the Land and Water Conservation Fund, the Historic Preservation Fund, and the Treasury.

ONRR receives and processes approximately 49,000 royalty and production reports monthly. It annually collects royalties on some 32,000 offshore and onshore producing leases and rents on some 29,000 nonproducing leases. ONRR uses an automated liquid verification system and gas verification system to ensure the accuracy of reported offshore production information.

FY2017 Budget and Appropriations

The Obama Administration submitted an FY2017 total funding request of $129.3 million for ONRR. There are no offsetting collections proposed for ONRR as there are for BOEM and BSEE. See Table 3 for the FY2017 funding request and ONRR appropriations. ONRR identified three major areas of importance that support its mission to collect, disburse, and verify federal and Indian energy and other natural resource revenue: (1) Financial and Production Management, (2) Audit and Compliance Management, and (3) Coordination, Enforcement, Valuation, and Appeals.

The FY2017 request reflected resources proposed for ONRR to assume trust responsibility for the Osage Nation as it does for all other tribes receiving mineral revenue. The Osage Nation is a federally recognized tribe located in Oklahoma. After a 2011 settlement ($380 million), DOI and the Osage Nation agreed to implement programs to strengthen management and improve communication. To date, the Osage oil and gas leasing program operates with support only from DOI's Bureau of Indian Affairs (thus, with no support from the Bureau of Land Management or ONRR). The addition of Osage to ONRR's portfolio would increase the amount of Indian leases under ONRR's management by 82%, or an additional 5,000 new leases and 30,000 producing wells. The Obama Administration's FY2017 request sought $968,000 to fully fund the Osage Trust Accounting program. The Osage Trust Accounting Program received $2.6 million in FY2016.

The Obama Administration requested $1.0 million in FY2017 for geospatial information systems (GIS) to improve the effectiveness of ONRR and to better understand the relationship between leases and transportation lines, among other things. The Administration also requested $1.2 million to improve ONRR's audit and compliance function.

ONRR's strategic goals include revenue management and royalty reform using ONRR-wide compliance measures. ONRR would like to improve its newly implemented compliance measures to fully reflect all of ONRR's compliance work. A major challenge confronting ONRR is to ensure that its audit and compliance program is consistently effective. Critics contend that less auditing and more focus on compliance review has led to a less rigorous royalty collection system and thus a loss of revenue to the federal Treasury. DOI's Inspector General and the Government Accountability Office (GAO) have made recommendations to strengthen and improve administrative controls of the compliance and asset management program, including adoption of a risk-based compliance approach. In FY2015, ONRR, along with its state and tribal audit partners, closed 110 audits and 667 compliance reviews. Tribes can conduct mineral royalty audits on their tribal land, and states can do so on federal leases within their state boundaries. ONRR has agreements with 10 states and 6 tribes to conduct leasing-compliance activities in their jurisdictions.

Congressional Action

The House-passed FY2017 Interior appropriations bill, H.R. 5538 , would have supported ONRR's programs at $126.5 million, $2.8 million below the Obama Administration's request and $1.0 million above last year's appropriation. The Senate committee-reported bill, S. 3068 , would have provided $121.8 million for ONRR, $7.6 million below the Administration's request and $3.8 million below the FY2016 appropriation. The 114 th Congress did not enact full-year Interior appropriations for FY2017, and continuing funds were provided through April 28, 2017, under the CRs ( P.L. 114-223 and P.L. 114-254 ). The CRs generally provide funding at the FY2016 level, minus an across-the-board reduction of less than 1%.

General Provisions

H.R. 5538 and S. 3068 contained general provisions related to offshore energy. Section 107 of both bills directed the ocean energy agencies to collect nonrefundable inspection fees in FY2017 to be deposited into BSEE's OSEE account and specified fee amounts. Section 108 of both bills authorized the Secretary of the Interior to transfer funds among and between BSEE, BOEM, and ONRR in accordance with reprogramming guidelines related to the earlier departmental reorganization. Both of these provisions are similar to those in previous years' Interior appropriations laws.

Section 124 of the House bill would have prohibited the use of funds in FY2017 or any other fiscal year to implement new regulations pertaining to drilling margins or static downhole mud weight in offshore wells. The provision referred to regulatory changes contained in BSEE's April 2016 final rule on offshore well control.

Obama Administration's Legislative Proposals

The Obama Administration included as part of its DOI budget some legislative proposals that pertained to the ocean energy agencies. One DOI proposal, concerning offshore revenue-sharing payments under P.L. 109-432 , the Gulf of Mexico Energy Security Act of 2006, sought to redirect the payments from their current recipients—the states of Alabama, Louisiana, Mississippi, and Texas—to broad federal natural resource and conservation programs. More than half of the funding would be redirected to a new Coastal Climate Resilience Program for at-risk coastal states, local governments, and communities to prepare for and adapt to climate change. A separate proposed package of federal oil and gas legislation for both offshore and onshore activities included changes such as evaluating minimum royalty rates, adjusting the onshore royalty rate, repealing legislatively mandated royalty relief, providing for shorter primary lease terms, instituting a new fee on nonproducing leases, and making certain changes in revenue collections, among other elements. Congressional action, if any, on such proposals could take place outside of the appropriations process.