OCS 101

What is the OCS?

What is the purpose of regulating the OCS?

Which federal agency regulates the OCS?

How does the government manage OCS oil & natural gas development?

What about offshore renewable energy development?

Do coastal governments have a role in OCS development?

Are government revenues generated from the OCS?

Who shares in these revenues?

 

 

 

What is the OCS?

OCS stands for “Outer Continental Shelf.” According to the Outer Continental Shelf Lands Act (signed into law in 1953 and amended in 2000), the U.S. OCS includes “all submerged lands lying seaward and outside of the area of lands beneath navigable waters…of which the subsoil and seabed appertain to the United States and are subject to its jurisdiction.”

The OCS contains significant reserves of oil and natural gas.  The federal Bureau of Ocean Energy Management, which analyzes the potential resource base in the OCS, estimated in 2016 a mean of 89.87 billion barrels of undiscovered technically recoverable oil and a mean of 327.49 trillion cubic feet of undiscovered technically recoverable natural gas in the federal Outer Continental Shelf of the United States.

 

 

What is the purpose of regulating the OCS?

As a public resource, the federal government has a responsibility to develop mineral resources from the OCS in a manner that balances the energy and economic needs of the country with environmental concerns.  The OCS Lands Act determined that the OCS is “a vital natural resource reserve held by the Federal Government for the public, which should be made available for expeditious and orderly development, subject to environmental safeguards, in a manner which is consistent with the maintenance of competition and other national needs.”

 

 

Which federal agency regulates the OCS? 

The Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement are primarily responsible for OCS management – both for mineral exploration and development and renewable energy development.  Both bureaus are part of the U.S. Department of the Interior.

Other federal agencies also have a role in regulating aspects associated with energy development on the OCS, including the National Oceanic and Atmospheric Administration, the Environmental Protection Agency, and the Office of Natural Resources Revenue.

 

How does the government manage OCS oil & natural gas development? 

The Secretary of the Interior is responsible for developing and executing a leasing plan.  The Five Year Outer Continental Shelf Oil and Gas Leasing Plan provides a schedule of oil and gas leases, including the timing, size, and location of proposed leases, over a period of five years.  Development of the plan is typically a two-year process that includes scoping of viable leasing areas and evaluation of environmental concerns.  There are at least four opportunities for public comment during the process.  Once the plan is approved, the Bureau of Ocean Energy Management oversees the execution of the lease sales.

The federal government organizes the OCS into four “planning areas:” Alaska, Atlantic, Gulf of Mexico, and Pacific.

 

 

What about offshore renewable energy development?

The Bureau of Ocean Energy Management also oversees development of offshore renewable energy (e.g. wind, wave, current and other technologies).  In 2009, the U.S. Department of the Interior completed the Final Renewable Energy Framework, which governs how the federal government grants leases, easements, and rights-of-way for renewable energy.  While much of the energy generated offshore does not derive from the OCS, some technologies, particularly many offshore wind platforms, must be harnessed to the seabed.

 

 

Do coastal governments have a role in OCS development?

Yes.  As stated in the OCS Lands Act, “since exploration, development and production of the minerals of the outer Continental Shelf will have significant impacts on coastal and non-coastal areas of the coastal States, and on other affected States…such States, and through such States, affected local governments, are entitled to an opportunity to participate, to the extent consistent with the national interest, in the policy and planning decisions made by the Federal Government relating to exploration for, and development and production of, minerals of the outer Continental Shelf.”

In regard to renewable energy, as provided in the Final Renewable Energy Framework, the federal government “will provide coordination and consultation with the Governors of any State or the executive of any local government or Indian Tribe that may be affected by a lease, easement, or ROW [right of way].”  Furthermore, since offshore renewable energy development is a fairly new practice, the federal government also provides an opportunity for state and local officials to participate in establishing a task force or joint agreement that would seek to clarify state and federal responsibilities for management of offshore renewable energy projects.

 

 

Are government revenues generated from the OCS?

Yes.  The federal government collects revenues from the production of oil and natural gas on the OCS through bonus bids, royalties and rents from lessees.  A bonus bid is a cash bid paid to the U.S. government by an operator for the right to explore an offshore lease for oil and natural gas.  If oil or natural gas is discovered, the lessee makes a royalty payment in money or in-kind to the federal government for a stated share of production based on the value of the oil and natural gas produced.  Finally, rents are paid by the lessee annually to retain the right to develop the resources in the area.

Since the level of lease sales and production varies, the amount of revenue generated varies year to year.

Accounting Year Revenues Reported from OCS Development
2016 $2,788,813,612.01
2015 $5,092,085,768.09
2014 $7,388,640,961.35
2013 $9,065,571,948.16
2012 $6,862,760,911.14
2011 $6,538,541,450.97

 

 

Who shares in these revenues?

The U.S. Department of the Treasury distributes about half of the revenues generated from all mineral development in various proportions to the states, the Historic Preservation Fund, the Land & Water Conservation Fund, the Reclamation Fund, and Native American Tribes & Allottees.  The other half remains at the U.S. Treasury, helping to fund federal programs.

For production near coasts, states directly share in the revenue generated. The Outer Continental Lands Act, Section 8(g) provides that 27 percent of all revenues from production within three miles seaward of the federal/state boundary be given to the states hosting production.

For the Gulf Coast region, revenue-sharing extends beyond the three-mile zone. In 2006, the U.S. Congress passed the Gulf of Mexico Energy Security Act (GOMESA) promulgating that the states of Texas, Louisiana, Mississippi and Alabama receive 37.5 percent of all royalties from new oil and natural gas development in federal waters adjacent to the respective state.  The intent of GOMESA is to ensure states have adequate resources to fund coastal restoration and conservation initiatives and hurricane protection projects.  Therefore, in addition to revenues distributed to the GOMESA states, 12.5 percent of revenues are allocated to the federal Land and Water Conservation Fund.