The Energy Law Blog : Energy Lawyer & Attorney : Liskow & Lewis Law Firm : Gulf Coast, Offshore

by Elisabeth Lorio Baer

Interior Secretary Ken Salazar informed Congress on September 17, 2009 that he would kill a controversial program, currently in effect, that allows energy companies to pay the government royalties for drilling on public lands in actual oil and gas in lieu of cash. The announcement was made during testimony to the House Natural Resources Committee which is holding a hearing on a proposal by Chairman Nick Rahall, D-W.V. to revamp the manner in which the nation leases and collects royalties for drilling on public land.

Salazar stated that he would begin a “phased-in termination” of the royalty-in-kind program. The program, previously promoted by the Mineral Management Service, has reportedly been so badly managed that the government has failed to collect an estimated $21 million in oil and gas royalties from about 29,000 productive leases. Salazar said that the royalty-in-kind program was outdated and difficult to administer. Jack Gerard, president of the American Petroleum Institute, defended the program, and urged Salazar to reconsider ending it.

For the full story, see http://www.chron.com/disp/story.mpl/business/energy/6621406.html
 

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By Kerry Murphy

On Wednesday September 2, BP drilled the world’s deepest oil well – the Tiber Prospect Well – and discovered a huge pool of crude oil. The Tiber well is located in the western Gulf of Mexico, southwest of New Orleans in U.S. waters. It is expected to rank among the largest petroleum discoveries in the United States, potentially producing as much oil as BP’s Thunder Horse well and half as much as Alaska’s famous North Slope oil field. The Tiber well is below 4,000 feet of water and more than 30,000 feet into the earth. As is common in deep-water operations, it will take years of work and millions of dollars before oil can be drawn from the well. The Tiber well promises to make a major impact on the economy of south Louisiana. Developing Thunder Horse required “countless” workers, and created increased business for shipyards, refiners, and manufacturers and retailers of industrial equipment. For more information on the Tiber well, see http://www.nola.com/business/index.ssf/2009/09/bp_makes_giant_discovery_in_gu.html.
 

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By Jessica Gladney

In Center for Biological Diversity v. U.S. Department of the Interior, the United States Court of Appeals for the District of Columbia Circuit issued a ruling on April 17, 2009 vacating the Department of the Interior’s statutorily-mandated five-year offshore oil and gas leasing program for the period 2007-2012. The five-year leasing program included an expansion of lease offerings in the Beaufort, Bering, and Chukchi Seas off the coast of Alaska. Suit was filed against the Department of the Interior by the Center for Biological Diversity and by Alaska native and environmental groups who challenged the leasing program on various environmental grounds. The D.C. Circuit (which has exclusive jurisdiction over a legal challenge to the five-year leasing program) rejected many of the petitioners' claims, but upheld the challenge based on a finding that "the [Leasing] Program's environmental sensitivity rankings are irrational." Accordingly, the court vacated the leasing program and remanded the program to Interior for reconsideration.

To view the entire opinion, please click here.

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By Jason Johanson

On Friday, March 6, 2009, Interior Secretary Ken Salazar stated that the agency is considering an appeal to the United States Supreme Court of the decision in Kerr-McGee Oil & Gas Corp. v. U.S. Department of the Interior, __ F.3d __, 2009 WL57883 (5th Cir. Jan. 12, 2009), in which the Fifth Circuit held that Interior had violated Section 304 of the Deep Water Royalty Relief Act by imposing "price threshold" requirements that reduce a lessee's royalty suspension volume below statutory minimums. Secretary Salazar also discussed Interior's comprehensive review of the agency's royalty management program, which may lead to an overhaul of the organizational structure of the Minerals Management Service. For more, please click here.

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On February 10, 2009, United States Secretary of the Interior Ken Salazar detailed a four-part strategy to establish a comprehensive offshore energy plan. First, Salazar extended the public comment period on President Bush’s OCS plan by an additional 180 days. He explained the extension was necessary to “restore order to a broken process.” Second, Salazar directed the MMS, USGS and other department scientists to assemble all available information pertaining to offshore resources, both conventional and renewable, and about the potential impacts of development. The Secretary expects to be provided with a report containing this information within 45 days. The third part of Salazar’s strategy will use this report to identify any areas requiring more information and will create a plan to best gather this information. Finally, Salazar announced that in the coming months he will issue a final rulemaking on offshore renewable energy resources. The Secretary believes this rulemaking “will allow us to move from the ‘oil and gas only’ approach of the previous Administration to the comprehensive energy plan that we need.”
 

To read Secretary Salazar’s remarks, please use the following link: http://www.doi.gov/secretary/speeches/021009_speech.html
 

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A unanimous panel of the United States Court of Appeals for the Fifth Circuit has held that the United States Department of the Interior violated the Outer Continental Shelf Deep Water Royalty Relief Act (“RRA”) by imposing price threshold conditions that require federal lessees to pay royalties when commodity prices rise.  Kerr-McGee Oil & Gas Corp. v. U.S. Dep’t of Interior, __ F.3d __, 2009 WL 57883 (5th Cir. Jan. 12, 2009). Relying on its 2004 decision in Santa Fe Snyder Corp. v. Norton, 385 F.3d 884 (5th Cir. 2004), the court held that Section 304 of the RRA unambiguously entitled Kerr-McGee to unconditional royalty relief on minimum volumes of production.

To read the entire opinion, please click here.

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By Clare Bienvenu

In Marcy v. Rowan Cos., Inc., No. 06-31238, 2008 WL 588745 (5th Cir. 2008), the Fifth Circuit Court of Appeals affirmed the district court’s decision to dismiss a qui tam action brought under the Federal Claims Act (FCA). The action alleged that the defendants violated the FCA by concealing the discharge of pollutants from an offshore drilling unit into the Gulf of Mexico.

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By Jana Grauberger:

A recent Interior Board of Land Appeals (“IBLA”) ruling, ATP Oil & Gas Corp., 173 IBLA 250 (2008), affirms an MMS denial of a Suspension of Operations (“SOO”) where the lessee submitted an revised exploration plan (“EP”) and permit to drill (“APD”) just days before the lease’s 10-year primary term expired, but was unable to conduct lease activities before the expiration date. The lessee, ATP, acquired its interest in the lease located in the Mississippi Canyon Area, Offshore Louisiana a little more than two months before expiration of its primary term, which the IBLA described as a “risky venture.” Due to weather conditions and the limitations of ATP’s contracted drilling rig, ATP was unable to get a well drilled prior to the lease expiration date.

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By Jonathan Hunter:

On October 30, 2007, the Federal District Court for the Western District of Louisiana granted summary judgment in favor of Kerr-McGee Oil and Gas Corporation in a dispute between Kerr-McGee and the Department of the Interior over the enforceability of "price threshold" clauses that Interior inserted into deep water leases granted during the years 1996-2000. The court ruled that Interior's price threshold clauses unlawfully deprived Kerr-McGee of the statutory right to produce minimum volumes of oil and gas royalty-free, as mandated by Congress in the Outer Continental Shelf Deep Water Royalty Relief Act of 1995. CLICK here to view the decision

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MMS's August 22, 2007 Western Gulf of Mexico lease sale offered 3,338 tracts, or approximately 18 million acres, offshore Texas.  Forty-seven companies participated, submitting 358 bids on 282 tracts.  The total of all bids received was $369,496,840.  MMS Director Randall Luthi observed that “the success of this lease sale once again demonstrates industry’s commitment and interest in the Gulf.” For more information, click here.

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By Jonathan A. Hunter

MMS has announced proposed amendments to its deep gas royalty relief regulations under the Energy Policy Act of 2005. The proposed rule, “Royalty Relief – Ultra-Deep Gas Wells on Outer Continental Shelf (OCS) Oil and Gas Leases; Extension of Royalty Relief Provisions to OCS Leases Offshore of Alaska, 1010–AD33,” would extend existing deep gas royalty relief provisions to more OCS leases, provide additional royalty relief for certain wells on OCS leases in the Gulf of Mexico (GOM), and expand authority to grant royalty relief to leases offshore of Alaska.  The proposed rule extends deep gas royalty relief to GOM leases in 400 meters of water (up from the current limit of 200 meters), and would increase the royalty suspension volume to 35 Bcf for qualifying ultra-deep wells at least 20,000 feet total vertical depth subsea  in less than 400 meters of water.  The additional relief will only be available in years when the annual NYMEX natural gas price is at or below $4.47/MMBtu expressed in 2006 dollars.  MMS will accept comments on the proposed rule through July 17, 2007.  Click here to read the Notice.

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By Jonathan A. Hunter

MMS has issued a proposed notice scheduling Central Gulf of Mexico Lease Sale 205 for October 3, 2007.  This will be the first  sale in the newly configured Central Gulf of Mexico Planning Area, and is the first Central GOM sale to be held in MMS’ 2007 – 2012 Outer Continental Shelf Oil and Gas Leasing Program.  The proposed sale includes approximately 5,000 unleased blocks, covering over 28.5 million acres, and ranging from 3 to 210 miles offshore.   Click here for information on obtaining the proposed notice of sale.

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