Luthi: OCS leasing must move beyond gulf

March 6, 2008
More federal OCS areas must be opened for oil and gas leasing if the US expects to limit its energy imports, said US MMS Director Randall B. Luthi.

Nick Snow
Washington Editor

WASHINGTON, DC, Mar. 6 -- More federal Outer Continental Shelf areas must be opened for oil and gas leasing if the US expects to limit its energy imports, said US Minerals Management Service Director Randall B. Luthi.

Effecting such a change "won't happen overnight," he said in opening remarks to the US Department of Interior agency's 2007 OCS Policy Committee Mar. 5 in Herndon, Va. "It will require substantial education. State and local governments could be the key. MMS is anxious to work with them,"

Oil and gas industry executives on the committee agreed. "There aren't many new places left to look in the US offshore," William A. Van Wie told OGJ. "We should at least consider the natural gas that might be available off the East Coast." Van Wie is vice-president and general manager of exploration at Devon Energy Corp. in Houston.

"Certainly, it's imperative to increase our domestic energy supplies," said James E. Carlton III, manager of land in the Lower 48 at ConocoPhillips Co. in Houston. "We need to work around congressional moratoria and presidential withdrawals. From an industry perspective, there are very few new places we can go despite our record of safe and reliable production.

A lease sale off Virginia's coast in 2011 is part of the 5-year OCS plan that began July 1, but it will take place only if a congressional moratorium is lifted and a presidential withdrawal ended. That would need to happen "in the very near future" for MMS to complete all the necessary preleasing steps, according to Renee Orr, leasing division chief in the agency's offshore minerals management division.

A very narrow window
"The window of opportunity is very narrow," Orr told the committee. MMS has not officially been approached by any southeastern coastal states about being included in the federal OCS program as Virginia did last year, she added. Others at the meeting told OGJ that at least one other state's legislature passed a bill during its 2008 session similar to Virginia's, however.

"We can start discussing what areas make sense," Luthi told reporters following his remarks. He said he expects revenue sharing to be part of any OCS leasing in new areas, with a split similar to the 37.5% split four Gulf Coast states will receive from new federal leases under the 2006 Gulf of Mexico Energy Security Act.

"Many people in this country have gotten used to thinking we can get energy elsewhere if we don't produce it here. That's changing, particularly with demand growing in China, India, and other countries that are closer to the resources," he told the committee.

"After the 2005 hurricanes, it became apparent that we're putting a lot of our eggs in one basket. That's why it's important to consider areas beyond the Gulf of Mexico," Luthi added.

He told reporters that the US Department of Justice should decide "in the next few days or weeks" if it will pursue an appeal which MMS requested of a federal court's decision that Kerr-McGee Corp. should not be required to pay $12-23 billion of royalties from its deepwater leases in the Gulf from 1996 through 2000. Anadarko Petroleum Corp. acquired Kerr-McGee on Aug. 10, 2006.

If the decision stands, he continued, "it would dwarf the royalty relief issues surrounding the 1998 and 1999 leases" which were issued without price ceilings. Six other producers which have voluntarily renegotiated terms for leases during those 2 years would not be held to the new agreements if the decision stands, he added.

Contact Nick Snow at [email protected].