Should Offshore Energy Leases Be Available Online?

2016-07-08T14:05:41+00:00 July 8, 2016|
An oil drilling platform off the coast of Santa Barbara, CA - 6 December, 2011 (Credit: TheConduqtor / Wikimedia)

(Click to enlarge) An oil drilling platform off the coast of Santa Barbara, CA on 6 December, 2011 (Credit: TheConduqtor / Wikimedia)

From the comfort of your home computer, you can order a milkshake, a new car, and even a silver coin from the mint of Henry VIII, all without pausing your favorite television show. These modern conveniences would have seemed impossible in the 1950s, when door-to-door salesmen peddled vacuum cleaners and microwave ovens had not reached a single residential kitchen.

Conversely, the process by which oil and gas companies procure leases from the 1.7 billion acres of U.S. outer continental shelf land hasn’t changed much since its inception in 1953, and some see it as similarly antiquated. Currently, a zone of 5,760 acres (9 square miles) is made available for lease in the Bureau of Ocean and Energy Management (BOEM)’s five year plan following a public notice period. BOEM-approved companies can then submit a bid for a specific area in a sealed envelope at an authorized, in-person lease sale. The highest bid is considered by BOEM, and the sale can proceed only if the bidder is able to meet any potential current or future lease obligations (including the cost to plug or abandon wells, remove drilling platforms, and restore the leased area to its original condition). Given that offshore energy leasing has contributed $46 billion to the U.S. economy over the past 35 years, lease sales are an undeniable revenue source to the American people.

Technology has changed almost every aspect of American life, and some think it’s time for offshore leasing to receive an update as well. The Innovation in Offshore Leasing Act (H.R. 5577) would modernize the process, originally defined by the Outer Continental Shelf Lands Act. The new bill specifies that offshore oil and gas lease sales be moved online within one year and that increased transparency of bill sales be provided to the public. For another offshore energy source, wind, lease sales already take place online. At a hearing of the House Committee on Natural Resources’ Subcommittee on Energy and Mineral Resources, the author of the bill, Representative Garrett Graves (LA-6) described how H.R. 5577 would improve lease sales and thus increase value to the public. Allowing more transparency in the bidding process could yield more competition among energy companies, which would raise the price of exciting lease opportunities that are in high demand. Additionally, having transparent online lease sales could allow companies to submit more bids, increasing the approximately 1.3 percent of the 1.7 billion offshore acres currently under leasing agreement.

Support from the bill came from both sides of the dais, as well as the witnesses, but some also levied criticisms. In addition to hopefully generating more revenue, the availability of online leasing could alleviate the risk of a lease sale being cancelled due to inclement weather and issues associated with protesters (the last leasing event in March was disrupted). BOEM Deputy Director Walter Cruickshank was generally supportive of the new legislation but cautioned that opening online lease sales within the one-year timeframe would be problematic for his agency, since they need adequate time and resources to modernize their procedures and to generate a secure website for the leasing. He also clarified that generating the online program would require upfront costs from the government, which may not be compensated for by increased lease sales for an unspecified period of time. Additional apprehensions were raised by several witnesses, including the worry that this bill could provide a route to fast-track additional lease sales, which could lead to more drilling with devastating environmental impacts. Some members were also concerned that the online sales could be used to swiftly allow Artic lease sales. Ranking Member Alan Lowenthal (CA-47), who cosponsored the legislation, emphasized this concern, saying, “Even the least sensitive part of the Artic is too pristine, far too fragile, and far too dangerous for offshore drilling, and I urge the Bureau of Ocean and Energy Management to completely remove these areas from the five year plan.” An update to the outdated leasing procedure may be prudent and cost effective in the long run, but stakeholders want to ensure that the new mechanism is viable. The clash between industry seeking additional prospects, environmentalists wanting to limit drilling, and the government hoping to increase its leasing income will remain, regardless of the leasing technology.