August 17, 2017

Ms. Kelly Hammerle
National Program Manager
BOEM
45600 Woodland Road
Mailstop VAM-LD
Sterling, VA 20166
Submitted via regulations.gov
Subject: Request for Information and Comments on the Preparation of the 2019–2024 Outer
Continental Shelf (OCS) Oil and Gas Leasing Program – MAA104000
The American Petroleum Institute (“API”), National Ocean Industries Association (“NOIA”),
Independent Petroleum Association of America (“IPAA”), U.S. Oil and Gas Association
(“USOGA”), American Exploration & Production Council ("AXPC"), International Association
of Drilling Contractors (“IADC”), International Association of Geophysical Contractors
(“IAGC”), Petroleum Equipment Suppliers Association (“PESA), and the Alaska Oil and Gas
Association (“AOGA”) (“the Associations”) offer the following comments on the Bureau of
Ocean Energy Management’s (“BOEM”) request for information and comments on the
preparation of the 2019-2024 Outer Continental Shelf Oil and Gas Leasing Program published in
the Federal Register on July 3, 2017. The Associations’ members are involved in exploring for
and developing oil and natural gas resources found on the OCS and are interested in the
development of the 2019-2024 OCS Leasing Program. In 2015, the U.S. oil and natural gas
industry supported more than 10.3 million jobs nationwide and made up more than 7.5% of
GDP. The decisions made regarding areas to include in the program will have long-term
implications for our nation’s energy security, prospects for job creation, and future revenue
generation.

1

 The Associations believe that at this point in the Five-year Program development process
all OCS areas with the potential to generate jobs and new revenue by advancing America’s
energy renaissance should be considered for inclusion in the Draft Proposed Program. Anything
less undermines the comprehensive process set forth in the OCS Lands Act and could have
significant impacts on U.S. energy policy options well into the future. We fully support keeping
existing exploration production areas in the Gulf of Mexico (GOM) and Alaska available for
leasing in the 2019-2024 Leasing Program and also urge BOEM to make new areas in the
Atlantic, Eastern Gulf of Mexico (EGOM), Beaufort and Chukchi Seas of Alaska, and the
Pacific available for leasing as part of the program.
I. The Associations
API is a national trade association representing 625 member companies involved in all
aspects of the oil and natural gas industry. API’s members include producers, refiners, suppliers,
pipeline operators, marine transporters, and service and supply companies that support all
segments of the industry. API and its members are dedicated to meeting environmental
requirements, while economically and safely developing and supplying energy resources for
consumers. API is a longstanding supporter of offshore exploration and development and the
process laid out in the OCS Lands Act as a means of balancing and rationalizing responsible oil
and gas activities and the associated energy security and economic benefits with the protection of
the environment.
NOIA is the only national trade association representing all segments of the offshore
industry with an interest in the exploration and production of both traditional and renewable
energy resources on the U.S. OCS. The NOIA membership comprises more than 325 companies
engaged in a variety of business activities, including production, drilling, engineering, marine
and air transport, offshore construction, equipment manufacture and supply, telecommunications,
finance and insurance, and renewable energy.
IPAA is a national trade association representing the thousands of independent oil and
natural gas explorers and producers, as well as the service and supply industries that support their
efforts. Independent producers drill about 95% of American oil and natural gas wells, produce
more than 50% of American oil, and more than eighty-five percent of American natural gas.
USOGA is a strong advocate for the petroleum industry and its contribution to our
country’s economic and strategic stability.
AXPC is a national trade association representing 33 of America's largest and most active
independent oil and natural gas exploration and production companies. AXPC members are
"independent" in that their operations are limited to exploration for and production of oil and
natural gas. Moreover, our members operate autonomously, unlike their fully integrated
counterparts, which operate in additional segments of the energy business, such as downstream
refining and marketing. AXPC members are leaders in developing and applying innovative and
advanced technologies necessary to explore for and produce oil and natural gas, both offshore
and onshore, from unconventional sources.
Since 1940, IADC has represented the worldwide oil and gas drilling industry. IADC’s
contract-drilling members own most of the world’s land and offshore drilling units that drill the
2

 vast majority of the wells producing the planet’s oil and gas. IADC’s membership also includes
oil-and-gas producers, and manufacturers and suppliers of oilfield equipment and
services. Through conferences, training seminars, print and electronic publications, and a
comprehensive network of technical publications, IADC continually fosters education and
communication within the upstream petroleum industry.
IAGC is the international trade association representing the industry that provides
geophysical services (geophysical data acquisition, processing and interpretation, geophysical
information ownership and licensing, associated services and product providers) to the oil and
natural gas industry. IAGC member companies play an integral role in the successful exploration
and development of offshore hydrocarbon resources through the acquisition and processing of
geophysical data.
PESA represents approximately 200 companies that provide the services, technology,
equipment and expertise necessary to safely and efficiently explore and produce oil and natural
gas. PESA member companies are committed to building a stronger oilfield service sector,
advancing safety and environmental stewardship, and ensuring that society has access to the
energy needed for continued economic progress.
AOGA is a non-profit trade association located in Anchorage, Alaska. AOGA’s 15
member companies account for the majority of oil and gas exploration, development, production,
transportation, refining, and marketing activities in Alaska. AOGA’s members are the principal
oil and gas industry stakeholders that operate within the range of marine mammals in Alaskan
waters and in the adjacent waters of the OCS. AOGA and its members are longstanding
supporters of wildlife conservation, management, and research in the Arctic, and also support the
continued issuance of incidental take authorizations in the Arctic. AOGA has for many years
successfully petitioned for, and defended in court, incidental take regulations applicable to
offshore oil and gas activities.

A.

II. Comments
Oil and Natural Gas Production Will be Needed to Meet Future Energy Needs

The recently issued Executive Order 13795, America-first Offshore Energy Strategy1,
and Secretarial Order 33502 which implements this strategy, fully recognize the importance of
offshore oil and natural gas development. With this request for information and development of
a new Five-Year Offshore Leasing Program it is clear that the administration is addressing the
responsibility granted by the OCS Lands Act3 that “the outer Continental Shelf is a vital national
resource reserve held by the Federal Government for the public, which should be made available

1

https://www.whitehouse.gov/the-press-office/2017/04/28/presidential-executive-order-implementing-americafirst-offshore-energy
2
https://www.doi.gov/pressreleases/secretary-zinke-signs-orders-implementing-america-first-offshore-energystrategy
3
Outer Continental Shelf Lands Act of 1953, as amended, 43 U.S.C. § 1331, et seq.

3

 for expeditious and orderly development, subject to environmental safeguards, in a manner
which is consistent with the maintenance of competition and other national needs.”4
Given expected global economic and population growth, energy efficiency improvements
and alternative energy sources will not be sufficient to meet anticipated U.S. and global energy
demand. The U.S. Energy Information Administration forecasts U.S. energy demand to increase
five percent by 2040, with more than half of that demand expected to be met by oil and natural
gas5.
For the foreseeable future, this increased demand will primarily continue to be met by
domestic production. The U.S. has become the world’s largest producer of oil and natural gas.
This energy renaissance has put millions of Americans to work, generated billions of dollars in
revenue for Federal and State governments, and put downward pressure on prices for consumers.
Growing U.S. production has dramatically increased our resistance to energy market shocks, but
our long-term energy security can only be strengthened with a lasting commitment to expanding
offshore oil and natural gas development. In 2016, offshore oil and natural gas production
accounted for approximately 18.2% and 4.4% of U.S. production respectively6. This production
is a crucial component in helping to ensure a dominant U.S. oil and natural gas industry in the
future.
B.

All OCS Areas Should be Fully Evaluated and Considered

At this point in the Five-year Program development process it is important for BOEM’s
evaluation of the OCS areas to include all 26 Planning Areas and not prematurely eliminate areas
that have resource development potential. The multi-step program development process is
designed to collect information from all stakeholders, provide the opportunity for careful
analysis and consideration of available information, and allow the Secretary of the Interior to
decide on what areas are best suited for future offshore exploration and development activities.
Since the existing process does not allow an area removed from consideration at an early stage to
be added back in at a later stage, it is important that areas are not prematurely eliminated from
consideration. One other nuance of the offshore leasing process is that even though a lease sale
is scheduled to be held as part of a Five-year Program, a decision on whether to have the sale is
made at the time the sale is scheduled. This allows BOEM the flexibility to include lease sales in
areas where a temporary moratorium is set to expire during the Program (like the EGOM where a
Congressional moratorium will end in 2022) or where new data that would inform decision
making is on the verge of being collected (like the Atlantic).
The decisions made now will have long-lasting impacts on U.S. energy policy. To
continue our march towards greater energy independence, bold, forward-looking decisions need
to be made. The GOM continues to increase production today, not because of leasing decisions
made five years ago but because of decisions made in the 1990’s and 2000’s. GOM production
increased by 25% between 2005 and 2016 and is projected to increase further7. To ensure a
4

43 U.S.C. § 1332(3).
https://www.eia.gov/outlooks/aeo/
6
Oil - https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm; Natural Gas https://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_VGM_mmcf_a.htm
7
https://www.eia.gov/todayinenergy/detail.php?id=32192
5

4

 robust energy program out to 2040 and beyond, decisions on areas to include in the 2019-2024
OCS Leasing Program need to be more expansive than today’s Leasing Program. Therefore,
BOEM should fully consider all areas for inclusion in the program and keep as many areas as
feasible in the Draft Proposed Program.
Recent events in Russia, Asia, and the Middle East highlight the importance of
maintaining a robust U.S. oil and natural gas industry to increase energy security and strengthen
national security. No longer are we as a nation crippled by world events that threaten supply or
heighten the risk of conflict. Our increased domestic production serves as a buffer to cushion the
shocks to our economy that were once commonplace. With the timeline for development of
offshore oil and gas stretching 10 to 15 years from the time of a lease sale, especially in frontier
and deepwater areas, we need to maintain our activity in existing areas of operation and
thoroughly consider expanding access to unexplored and undeveloped OCS areas that have been
off limits for decades. Resources from these areas will be needed to replace the onshore and
offshore oil and natural gas reserves that we currently produce.
Previous federal energy policy decisions have kept most of the U.S. OCS off limits to
exploration and potential production. With the right choices, offshore oil and natural gas could
play an even greater role in increasing domestic production, creating jobs and driving other
economic benefits. Quest Offshore Resources concluded that development in the Atlantic could
create nearly 280,000 new jobs along the East Coast and across the country, grow our economy
by up to $23.5 billion per year and add 1.3 million barrels of oil equivalent per day to U.S.
production8. This equals about 70% of current production from the GOM. Jobs and government
revenue are also locked away with large energy reserves in the Pacific and EGOM, totaling more
than 200,000 jobs, $218 billion and 2.6 million barrels per day according to a Wood Mackenzie
study9.
C.

Existing and Historical OCS Exploration and Development Areas are Important

The OCS contains critically important hydrocarbon producing areas like the GOM where
expertise and technology has increased our nation’s energy security and prospective areas like
the Chukchi and Beaufort Seas off Alaska that are thought to contain world-class hydrocarbon
resources. Regular and predictable lease sales, regulatory certainty, and timely permitting are
needed to help ensure high participation in future lease sales, new federal revenues from lease
bonuses, and sustained offshore exploration and production.
The importance of predictability and certainty in the offshore leasing program cannot be
overemphasized and are crucial to a successful offshore energy policy. Companies need regular
access to leases to make the long-term commitments required for offshore development,
particularly for investments at the magnitude required for frontier areas like the Arctic. As
technology improves and economic conditions change, leases once deemed noncommercial
evolve into viable drilling candidates with commercial potential. Because of this evolution, it is
important to allow innovative companies the opportunity to pursue new leases to test innovative
geologic concepts and to employ advancements in drilling and production technology. A
continuous stream of new discoveries is needed to replace depleted reserves and help maintain or
8

http://questoffshore.com/wp-content/uploads/Economic-Benefits-Full-Dec.13.pdf
http://www.api.org/~/media/Files/News/2011/SOAE_Wood_Mackenzie_Access_vs_Taxes.pdf

9

5

 increase domestic production levels. Without the opportunity to obtain leases, companies will be
forced to turn their attention and investment dollars to prospects in other parts of the country or
the world.
Development of new oil and gas resources in Alaska is a critical state and national
interest. In 1988 Alaska‘s North Slope was producing 2.145 million barrels per day -- or 25% of
the U.S. domestic production. Current North Slope production has declined to less than 575,000
barrels per day. Drilling of new offshore prospects and development of the discoveries that may
be found is essential to slowing and reversing the current, declining trend in Alaskan oil
production. Should this decline continue unabated, the viability of the Trans-Alaska Pipeline
will be threatened, and with it the flow of existing production to the Lower 48 States. The
Chukchi Sea was last estimated by MMS/BOEM in 2006 to contain 15.38 BBO, 76.77 TCFG, or
a total of 29.04 BBOE. The Beaufort Sea was last estimated by MMS/BOEM in 2006 to contain
8.22 BBO, 27.65 TCFG, or a total of 13.14 BBOE10. The Chukchi Sea offers more resources
than any other undeveloped U.S. energy basin. The Beaufort Sea, while smaller, nevertheless
provides among the largest undiscovered resource accumulations in the U.S. The development
of the Chukchi Sea and the Beaufort Sea will also greatly enhance U.S. energy security by
sustaining the Trans-Alaska Pipeline System and generating significant economic benefits for
Alaska and the nation. Based on a 2011 study by the Anchorage firm Northern Economics,
development of these two Arctic OCS Basins could generate as many as 50,000 jobs11.
Another benefit of the sustained and expansive energy policy the U.S. has followed in
parts of the Gulf of Mexico is that the U.S. oil and natural gas industry has become the world
leader in offshore technology development. This is particularly true in terms of deepwater
exploration, drilling and development operations. To maintain our position as a technology
leader we will need to pursue an energy policy that continues to allow leasing in existing and
historical areas of operation, especially in the Arctic and the Atlantic. The U.S. needs to
continue to foster exploration and development activities in new OCS areas so that we can
remain on the forefront of area-specific technology development rather than leave this to other
countries.
D.

New Areas of Exploration are Needed

The Atlantic OCS has not been explored for decades, and no Atlantic sales were included
in the 2017-2022 Five-Year OCS Leasing Program despite strong support for leasing and
development by elected officials in Virginia, North Carolina and South Carolina. Most
importantly, permitting decisions to allow seismic surveys and data collection in the Mid- and
South Atlantic OCS Planning Areas were delayed without scientific justification, They are
finally advancing, albeit at a very slow pace. Atlantic seismic survey data are needed to update
resource estimates that are based on decades-old information. With new seismic data in hand,
decisions informed by science can be made as to the true resource potential in these areas.
However, because of the ongoing permitting delays, the timing of the 2019-2024 Five-Year
10

Minerals Management Service. Undiscovered Oil and Gas Resources, Alaska Federal Offshore as of 2006.
http://www.boem.gov/uploadedFiles/BOEM/Oil_and_Gas_Energy_Program/Resource_Evaluation/Resource_Assessment/2006
AlaskaUndiscoveredOilandGasResources.pdf
11
Northern Economics, Inc. and Institute of Social and Economic Research. Potential National-Level Benefits of Alaska OCS
Development. Prepared for Shell Exploration & Production. February 2011

6

 Program development process and industry’s seismic data collection remain out of sync. BOEM
will need to decide which areas to include in the Draft Proposed Program well before industry
has the opportunity to collect and analyze any new seismic data. If the Atlantic OCS is not
included in the Draft Proposed Program, then new seismic data will likely not become available
as the incentive for companies to collect the data – and the prospect of a future lease sale – will
be gone. Therefore, we respectfully request that, at a minimum, the Mid-and South Atlantic
OCS Planning Areas must be included in the Draft Proposed Program.
The 2019-2024 Program offers an opportunity in the EGOM that has not been available
since a Congressional moratorium was enacted in 2006. The Congressional Moratorium for the
EGOM was put in place as part of the Gulf of Mexico Energy Security Act of 2006 and it bans
oil and natural gas leasing within 125 miles off the Florida coast and east of a negotiated Military
Mission Line in the EGOM, and a portion of the Central GOM. It is set to expire in 2022, or
earlier with Congressional action. Lease sales can be scheduled and held in the latter part of the
2019-2024 Program without any Congressional action. The long-standing framework of
cooperation between the Department of the Interior (DOI) and the Department of Defense
(DOD) demonstrates that these are not mutually exclusive missions, but that both missions can
coexist and help to advance our national and energy security goals.
In addition, one criterion the DOI is required to use in selecting areas to be included in
the proposed Program is the likely availability, or presence, of oil and gas resources. Areas of
the EGOM with significant known reserves that feature promising geological conditions should
therefore be included in the Draft Proposed Program. Supporting resources and infrastructure in
the Central Gulf of Mexico could be enhanced relatively quickly if expanded oil and natural gas
exploration and development take place. Failing to include the Eastern Gulf Planning Areas in
the first stage of a lengthy, multi-stage leasing program evaluation process because of local
opposition, unfounded concerns over conflicts with military training, or the existence of a
temporary moratorium undermines the entire Five-year Leasing Program process that is designed
to take multiple factors into account throughout the process and not pre-determine the outcome
or the actions of Congress.
We encourage BOEM to continue to work with the military to demonstrate that oil and
natural gas operations and military training activities are not incompatible, per se. The last
evaluation the DOD conducted in 2010 indicated that only 11% of the EGOM should be off
limits to oil and natural gas exploration and development activities. This evaluation should be
updated as soon as possible. Based on the results, BOEM can analyze areas of known and
prospective resources in relation to the military’s areas of concern and other ocean users to
determine areas best suited for future leasing.
E.

Industry Activities are Compatible with Other Ocean Uses

Through decades of activity on the OCS, industry has proven that its operations can
coexist with other uses and users of the ocean. For example, the military has established Military
Warning Areas and Water Test Areas in the GOM and leases in these areas contain stipulations
that require special accommodations to military operations, including the right of the military to
suspend oil and gas operations, require evacuation of personnel, and require a formal Operating
Agreement between the lessee and the military. Also, a “drilling window” program (rarely used
7

 given the uncertainty associated with receiving necessary permits to conduct offshore operations)
was established in 1991 in the EGOM, to ensure that any drilling can be conducted in a safe,
predicable, and orderly manner without interfering with scheduled military activities or
jeopardizing the national defense mission.
Another example is the thriving Flower Garden Banks National Marine Sanctuary. A
series of coral reefs that have been surrounded by industry operations and platforms since its
creation in 1991, the banks provide home to a large array of marine life and offer recreational
divers a spectacular experience. Add to these examples the robust commercial and recreational
fishing industries in the Gulf of Mexico and Alaska and the coastal tourism industry in Gulf
Coast states and there is ample evidence that oil and natural gas development and other ocean
industries can co-exist and all can thrive12.
F.

Continued Safety and Environmental Performance Improvements

The oil and natural gas industry continues to work both independently and with the
regulators to enhance the safety of offshore operations. Many industry standards have been
revised, enhanced or developed to cover areas including well design, cementing, and
operator/contractor interaction; blowout prevention equipment design, operation, repair and
maintenance, and associated control systems; and, subsea equipment interfaces with remotelyoperated vehicles and well capping equipment. The Center for Offshore Safety also works to
improve the safety performance of America’s offshore oil and natural gas industry and it
continues to work with companies and the regulators to engrain safety culture into day-to-day
operations.
The Marine Well Containment Company and the Helix Well Containment Group provide
containment technology and response capabilities for the unique challenges of stopping the flow
of oil thousands of feet below the water’s surface. In the unlikely event that these services will be
needed, these companies maintain quickly deployable systems that are designed to stem
uncontrolled flow of hydrocarbons from wellbores located on the seafloor either by sealing the
well or directing the fluids into storage vessels located on the surface of the water.
The oil and natural gas industry also continues to advance an oil spill response research
and development program that oversees more than 25 projects in eight areas: planning,
mechanical recovery, dispersants, in-situ burning, remote sensing, shoreline protection,
alternative technologies, and inland spill response. Oil spill response organizations have
increased their capabilities by increasing training and keeping in inventory more equipment that
is fit for specific purposes such as in-situ burning, and the industry has invested in international
oil spill preparedness and response programs focused on improving industry operational
capabilities in all parts of the world, including the Arctic.
The offshore industry systematically assesses operating practices and management
systems with the goal of continuous improvement in safety and environmental performance. The
safety and environmental performance record over recent years suggests that these efforts have
been effective. The Associations also believe that these changes have made offshore oil and gas
exploration and development safer, providing protection to communities and the environment.
12

https://energyindepth.org/national/the-petroleum-and-tourism-industries-thrive-in-americas-gulf-coast/

8

 G.

Requested Fair Market Value Information

BOEM has posed a series of questions on fair market value topics. The Associations’
answers, provided below, were developed using information found in a study by BOEM’s
predecessor, the Bureau of Ocean Energy Management Regulation and Enforcement
(BOEMRE), specifically, OCS Study BOEMRE 2011-014, Economic Analysis, Inc. and Marine
Policy Center December 2010, Policies to Affect the Pace of Leasing And Revenues in the Gulf
of Mexico Technical Report. It is important to note that the main conclusion of this report is:
“[f]irst and foremost, the results show that there are important tradeoffs
across policy alternatives, so no single policy is best at achieving all
Goals. Nor does any individual policy dominate the Status Quo policy.
Rather, some policy alternatives perform better than the Status Quo in
terms of some Goals, but not as well in terms of others. So the choice
among policies depends upon value judgments regarding the relative
importance of the various goals.”
The Associations agree with the main conclusion of the report. If BOEM makes changes
to the existing fiscal policy framework in the GOM, industry will react accordingly based on
expected market forces, but there may be unintended consequences that cannot be anticipated.
For frontier areas, should they be made available for leasing, there are factors unique to each
area, highlighted in Question #2 below, that BOEM must consider and understand the
consequences of those choices. If the ultimate goal is to maximize U.S. offshore production and
the revenues, jobs, and energy security that it brings, BOEM needs to make fiscal term decisions
that encourage continued industry investments in the Gulf of Mexico and new investments in
frontier areas. This is especially true given the ongoing low price environment that makes largescale capital investment more challenging.
1.

If DOI continues leasing in the Gulf of Mexico planning areas, are there changes
to lease terms that will better meet the objectives of the OCS Lands Act? Lease
terms subject to change include:
a. Minimum bids
The BOEMRE analysis found that “[h]igher minimum bids are shown to increase
cash bonus bids on some tracts, but also result in a reduction in the number of
tracts sold. The net effect on total discounted cash bonus bids and royalty
payments is insignificant.” Additionally, “[t]he tracts that go unsold will
disproportionately be marginal tracts that would typically receive only a single
bid, so that the average bid per tract sold is expected to increase.” Finally the
report concluded that, “[i]ncreasing the minimum bid reduces OCS activities.”
The major take away from this analysis is that an increase in the average
minimum bid does not mean more money for the government; it just means that
fewer marginal tracks will be sold and that fewer companies will participate in
lease sales because of the higher cost. Over time this will result in less OCS
activity.
9

 b. Rental rates
The key findings in the BOMRE analysis is that “[i]ncreasing the area rental rate
slightly reduces the number of tracts sold, and may lead firms to relinquish tracts
prematurely, thereby reducing expeditious development of OCS resources”, and
“[h]igher rental rates induce firms to purchase fewer tracts and perhaps to spend
less time exploring tracts.”
c. Royalty rates, royalty structures (e.g., flat or sliding scale)
In general, the BOEMRE analysis found that higher royalty rates would
undermine the goals of the OCS Lands Act and “adversely affect expeditious
development of OCS resources, reduce competition for tracts, and reduce the
overall social value of OCS resources.” BOEM might see higher royalty
payments if rates were raised but the gains would be offset by lower bonus bids
and other revenue flows. Additionally, coastal states would see lower
employment and less economic development attributed to OCS development
because of the decreased level of activity.
In a low price environment, the impact of royalty rates cannot be underestimated.
BOEM reduced royalty rates for leases in water depths less than 200 meters to
12.5% in upcoming Lease Sale 249. Presumably this was done to spur additional
leasing and development activities. BOEM should consider extending the lower
royalty rates to leases in all water depths to help ensure that capital investments in
the GOM remain competitive with opportunities available in other areas around
the world.
d. Initial period (also known as primary term) of the lease term and extended initial
period (such as 7 years plus 3 years more if drilling commences)
In the BOEMRE report, it is noted that “shorter lease terms are found to adversely
affect most measures of expediting development of OCS resources, and to reduce
the overall social value of OCS resources.” The Associations do not support
policies that result in an outcome such as this. Shorter lease terms, especially in
deeper waters, make the exploration process much more difficult for companies
because of the compressed timeframes. According to the BOEMRE report, the
end result of shorter lease terms would be less competition for leases, lower bonus
bids, and a reduction in royalty payments to the U.S. government.
BOEM should undertake an evaluation of the utility of the seven plus three lease
term in water depth from 800 to 1600 meters. Based on anecdotal information,
the Associations believe that such an evaluation may show that companies are
reluctant to obtain these leases compared to leases with longer initial lease terms,
resulting in less development of resources in these water depths.

10

 2.

If DOI offers acreage for lease in planning areas outside the Gulf of Mexico, what
fiscal terms for each planning area will best meet the objectives and limitations of
the OCS Lands Act regarding the lease terms listed in items 1a. to 1d. above?
The input provided for questions 1a. to 1d. above will hold true for areas outside
the GOM. BOEM should establish the lease and fiscal terms to achieve its overall
objectives for U.S. offshore energy policy. The Associations believe that lease
and fiscal terms for U.S. offshore energy policies should encourage broad
participation, active lease exploration and development programs, and production
growth. BOEM should avoid policies that sacrifice long-term viability to realize
short-term revenue gains and satisfy the calls for industry to hold fewer leases.
a. Is there an alternative design, e.g., auction-type design that may be better suited
to achieve fair market value, either by changing the bidding variable or some
other aspect of the competitive lease sale?
The Associations do not see a need to move away from the current lease sale
construct. The BOEMRE report indicates that “[m]ulti-Round Auctions result in
significantly more tracts sold, and slightly (insignificant) increasing production
activity, and therefore royalties and area rentals.” Any increase in production and
associated revenues would be offset by a reduction in total high bonus bids and
would result in a small decrease in total revenue.
b. Should the upcoming program consider use of alternative and/or nontraditional
fiscal terms, primary lease terms, auction formats, or tract offering sizes? Please
state which of these features of the leasing process merit consideration for future
use, where and under what conditions those changes might be useful, and explain
why such a change is necessary or beneficial, e.g., demonstrate that exploration
would not occur in selected frontier areas without larger than traditionally-sized
tracts in lease sales.
The Associations fully support continued use of the current area-wide leasing
program in all OCS areas. We believe that the term "area-wide leasing" does not
accurately convey the meaning of the concept, or its utility to the government and
the industry. It does not mean, for example, that all OCS acreage offered would
be leased for oil and gas exploration. Rather, it means simply that all of the area
would be available for consideration for oil and gas leases. Any one of a variety
of factors, ranging from environmental concerns to lack of oil and gas prospects
could prevent a particular tract from being leased. All that area-wide leasing
implies is that no tract would be automatically excluded from the bidding process
merely because BOEM concludes that no one would wish to submit a bid on it.
There are a number of important advantages to the area-wide leasing approach. It
allows the bidders to consider the entire geological basin rather than a small
portion of it. Most oil companies have highly structured criteria for making
exploration decisions. Allowing a firm to take the entire basin into consideration
gives the U.S. the full benefits of a diversity of approaches and exploration
philosophies for areas previously unleased. Area-wide leasing ensures that areas
11

 with potential become available for exploration. In addition, according to the
BOEMRE study, a nomination approach would slow the pace of leasing and
increase the amount of bonus bids received, but these revenue gains would likely
be offset by lower revenues in the future and would affect the ability of the
government to achieve one of the OCS Lands Act goals of expeditious
development of OCS resources.
The Associations wish to add that the federal government’s failure to provide
regulatory certainty to Alaska’s OCS leaseholders will impact the economic
attractiveness of future Alaskan OCS lease sales. While approximately 650 leases
netting the federal government billions of dollars were awarded to companies
interested in oil and gas exploration on the Alaskan OCS since 2005, significant
federal regulatory obstacles remain and only a single well has been drilled to its
targeted hydrocarbon depth in this area. To attract the investment necessary for a
successful lease sale and realize the benefits associated with Alaskan offshore
development, the federal government should consistently adhere to its lease sale
plans and provide a clear and consistent regulatory framework that is based on
sound science.
The need for certainty and predictability in the leasing, exploration and
development process cannot be overstated. In addition to the recent experiences
in Alaska, industry has also been faced with similar challenges in other OCS
areas. Most notably in the EGOM, industry investments were undermined by a
last minute withdrawal of significant portions of the area offered for leasing in
Lease Sale 181. Additional challenges have resulted from the failure to provide
regular, additional EGOM lease sales to allow lessees to add adjoining acreage to
existing lease positions prior to undertaking drilling activities. Also, in the
Atlantic and Pacific, there is a history of granting leases for which lessees are
ultimately unable to obtain drilling permits causing the lessees to resort to costly
and lengthy litigation to recoup bonus bids and lease rentals. These experiences
will likely have an impact on the amount industry is collectively willing to invest
in these areas should they be offered for leasing.
H.

Specific Information Requested from Industry
BOEM requested specific information from industry on the following questions:
(1)

Indicate the OCS Planning Area(s) where the industry respondent would be
interested in acquiring oil and gas leases, regardless of whether the area
currently is unavailable. If more than one Planning Area is of interest, rank all
areas of interest (including those now being offered, if appropriate) in order of
preference.
Given our role as Trade Associations and our compliance with state and federal
antitrust laws, it is difficult for us to provide specific information to BOEM on
industry’s preference for one area over another. As stated previously, at this point
in the Five-year Program development process all OCS areas with the potential to
12

 generate jobs and new revenue by advancing America’s energy renaissance
should be considered for inclusion in the Draft Proposed Plan.
(2)

Indicate the number and timing of lease sales in the period 2019–2024 that would
be appropriate for each Planning Area. If only one lease sale in a Planning Area
is appropriate, indicate whether that area should be considered for leasing early
or late in the five-year schedule. If more than one lease sale in a planning area is
suggested, indicate the preferred interval between lease sales.
The Associations have little input to provide on the number or timing of lease
sales, with the following exceptions:
 In frontier areas like the Atlantic that have been closed to exploration for
decades, there is an immediate need to conduct new seismic surveys, and
process and interpret the data before industry can be expected to consider
the investment of obtaining and eventually developing leases in these
areas. The ongoing permit delays in the Atlantic are exacerbating this
problem.
 EGOM lease sales should be scheduled throughout the 2019-2024 Leasing
Program with sales scheduled prior to 2022 being contingent on the
Congressional moratorium being lifted.
 In the GOM, two lease sales per year are adequate, and they should be
held every six months.

(3)

Indicate the expected lead time to production in areas that are not part of the
2017–2022 Program or currently do not have infrastructure or production,
relative to lead-times to new production in previously leased areas like the
Central and Western Gulf of Mexico.
Based on historical experience, in frontier areas, extensive exploration activity,
drilling time, market dynamics, equipment availability, etc. from the time a lease
is obtained until first production can extend 10 to 15 years, making a 10-year
lease term a challenge. In the GOM this scenario is increasingly true for
deepwater leases.

(4)

In addition, BOEM requests information on industry’s view of the utility of
region-wide sales in the Gulf of Mexico as planned in the 2017–2022 National
Program.
Industry has not worked under the region-wide lease sale program for a long
enough time to render a judgement. However, based on limited experience, it
seems to be worth continuing for the near future.

I.

Conclusion
The Associations appreciate the opportunity to comment on the request for information.
Since we are trade associations, we have chosen not to provide much of the specific
geologic information that was requested or to rank the individual planning areas.
13

 Individual companies are better suited to provide that information. Nonetheless, we look
forward to working with BOEM on development of the 2019-2024 Five-year OCS
Leasing Program. Should you have any questions please contact Andy Radford at 202682-8584 or radforda@api.org.
Sincerely,

Erik Milito, American Petroleum Institute

Jeff Vorberger, National Ocean Industries Association

Dan Naatz, Independent Petroleum Association of America

Alby Modiano, U.S. Oil and Gas Association

V. Bruce Thompson, American Exploration & Production Council

Jason McFarland, International Association of Drilling Contractors

Nikki Martin, International Association of Geophysical Contractors

14

 Leslie Shockley Beyer, Petroleum Equipment Suppliers Association

Joshua Kindred, Alaska Oil and Gas Association

15