S. 318 (103rd): Outer Continental Shelf Deep Water Royalty Relief Act

103rd Congress, 1993–1994. Text as of Apr 11, 1994 (Reported by Senate Committee).

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S 318 RS

Calendar No. 402

103d CONGRESS

2d Session

S. 318

[Report No. 103-248]

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

February 4 (legislative day, JANUARY 5), 1993

Mr. JOHNSTON (for himself, Mr. KRUEGER, and Mr. BREAUX) introduced the following bill; which was read twice and referred to the Committee on Energy and Natural Resources

April 11, 1994

Reported by Mr. JOHNSTON, with amendments

[Omit the part struck through and insert the part printed in italic]


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.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, 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- The Outer Continental Shelf Lands Act, as amended, is amended by redesignating section 8(a)(3) (43 U.S.C. 1337(a)(3)) as section 8(a)(3)(A) and by adding at the end thereof the following:

      ‘(B) The Secretary may, in order to promote development and new production on a producing or non-producing lease, through primary, secondary, or tertiary recovery means, or to encourage production of marginal or uneconomic resources on a producing or non-producing lease, reduce or suspend any royalty or net profit share set forth in the lease.

      ‘(C)(i) Notwithstanding the provisions of this Act other than this subparagraph, no royalty payment shall be due on new production, as defined in [Struck out->] clause (ii) [<-Struck out] clause (iii) of this subparagraph, from any lease located in water depths of 200 meters or greater in the Western and Central Planning Areas of the Gulf of Mexico, and the Eastern Planning Area of the Gulf of Mexico west of the lateral seaward boundary between the States of Florida and Alabama, or for any lease in the frontier areas of Alaska, which shall, at a minimum, include those areas with seasonal sea ice, long distances to existing pipelines and ports, or a lack of production infrastructure, until the capital costs directly related to such new production have been recovered by the lessee out of the proceeds from such new production.

      ‘(ii) With respect to any lease in existence on the date of enactment of the Outer Continental Shelf Deep Water Royalty Relief Act meeting the requirements of this subparagraph, upon application by the lessee, the Secretary shall determine within ninety days of such application whether new production from such lease 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 all costs associated with obtaining, exploring, developing, and producing from the lease. The lessee shall be afforded an opportunity to provide information to the Secretary prior to such determination. Such application may be made on the basis of an individual lease or unit (as defined under the provisions of 30 CFR part 250). 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) of this subparagraph shall not apply to such production. Redetermination of the applicability of clause (i) shall be undertaken by the Secretary when requested by the lessee upon significant change in the factors upon which the original determination was made. The Secretary shall make such redetermination within sixty days of such application. The Secretary may extend the time period for making any determination under this clause for thirty days 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. In the event that the Secretary fails to make the determination or redetermination upon application by the lessee within the time period, together with any such extension thereof provided for by this clause, the relief from the requirement to pay royalties provided for by clause (i) shall apply to such production.

      ‘ [Struck out->] (ii) [<-Struck out] (iii) For purposes of this subparagraph, the term--

        ‘(aa) ‘capital costs’ shall be defined by the Secretary and shall include exploration costs incurred after the acquisition of the lease and development costs directly related to new production. The terms ‘exploration’ and ‘development’ shall have the same meaning contained in subsections (k) and (l) of section 2 of this Act except the term ‘development’ shall also include any similar additional development activities which take place after production has been initiated from such lease. Such capital costs shall not include any amounts paid as bonus bids but shall be adjusted to reflect changes in the consumer price index, as defined in section (1)(f)(4) of title 26 of the United States Code; and

        ‘(bb) ‘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 approved by the Secretary after the date of enactment of the Outer Continental Shelf Deep Water Royalty Relief Act; and

      ‘ [Struck out->] (iii) [<-Struck out] (iv) In any month during which the arithmetic average of the closing prices for the earliest delivery month on the New York Mercantile Exchange for Light Sweet crude oil exceeds $28.00 per barrel, any production of oil subject to relief from the requirement to pay royalties under clause (i) of this subparagraph shall be subject to royalties at the lease stipulated rate, and the lessee’s gross proceeds from such oil production, less Federal royalties, during such month shall be counted toward the recovery of capital costs under clause (i) of this subparagraph.

      ‘ [Struck out->] (iv) [<-Struck out] (v) In any month during which the arithmetic average of the closing prices for the earliest delivery month on the New York Mercantile Exchange for natural gas exceeds $3.50 per million British thermal units, any production of natural gas subject to relief from the requirement to pay royalties under clause (i) of this subparagraph shall be subject to royalties at the lease stipulated rate, and the lessee’s gross proceeds from such natural gas production, less Federal royalties, during such month shall be counted toward the recovery of capital costs under clause (i) of this subparagraph.

      ‘ [Struck out->] (v) [<-Struck out] (vi) The prices referred to in [Struck out->] clauses (iii) and (iv) [<-Struck out] clauses (iv) and (v) of this subparagraph shall be changed during any calendar year after [Struck out->] 1993 [<-Struck out] 1994 by the percentage if any by which the consumer price index changed during the preceding calendar year, as defined in section (1)(f)(4) of title 26 of the United States Code.’.

    SEC. 3. REGULATIONS- The Secretary shall promulgate such rules and regulations as are necessary to implement the provisions of this Act within one hundred and eighty days after the date of enactment of this Act.

    SEC. 4. AREA-WIDE LEASING- The Secretary shall not implement the system of tract nomination for oil and gas leasing in the Central and Western Planning Areas of the Gulf of Mexico under the Outer Continental Shelf Lands Act, and shall use the existing area-wide system of leasing in such areas.

    SEC. 5. REPORT TO CONGRESS- (a) The Secretary shall review Federal regulations and policies within the Secretary’s jurisdiction which create barriers and disincentives that unnecessarily preclude new production, or result in premature abandonment or suspension of existing production of oil and gas on Federal lands, including the Outer Continental Shelf. Such review, conducted with the participation of all interested parties, shall assess how Federal policies could be modified to reduce compliance costs and improve the cash flow of oil and gas operations on Federal lands. The review shall include administrative compliance, royalty collection, timing of operational and production management requirements, such as permanent plugging and abandonment of wells, and any other requirements which unduly burden natural gas and oil exploration, production and transportation on Federal lands.

    (b) The Secretary shall evaluate the impact, if any, of current royalty rates for oil and gas on Federal lands, both onshore and offshore, on the viability of undeveloped fields by general category, such as production volume, crude quality, water depth, and distance from existing infrastructure. The review shall be based on current industry technology and cost information, and shall assess how a reduction in Federal oil and natural gas royalties would encourage development.

    (c) The Secretary shall report to the Committee on Energy and Natural Resources of the United States Senate and to the United States House of Representatives on the review required by this section and actions taken as recommended pursuant to such review, or the reason such actions have not been taken, within ninety days of the date of enactment of this Act.