[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 318 Reported in Senate (RS)]

                                                       Calendar No. 402

103d CONGRESS

  2d Session

                                 S. 318

                          [Report No. 103-248]

_______________________________________________________________________

                                 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.

_______________________________________________________________________

                             April 11, 1994

                        Reported with amendments





                                                       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 -c-l-a-u-s-e -(-i-i-) 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.
            ``-(-i-i-) (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
            ``-(-i-i-i-) (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.
            ``-(-i-v-) (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.
            ``-(-v-) (vi) The prices referred to in -c-l-a-u-s-e-s 
        -(-i-i-i-) -a-n-d -(-i-v-) clauses (iv) and (v) of this 
        subparagraph shall be changed during any calendar year after 
        -1-9-9-3 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.