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                                                       Calendar No. 402
109th Congress                                                   Report
                                 SENATE
 2d Session                                                     109-240

======================================================================



 
       OIL AND GAS LEASING IN THE 181 AREA OF THE GULF OF MEXICO

                                _______
                                

                 April 20, 2006.--Ordered to be printed

   Filed, under authority of the order of the Senate of April 7, 2006

                                _______
                                

   Mr. Domenici, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2253]

    The Committee on Energy and Natural Resources, to which was 
referred the bill (S. 2253) to require the Secretary of the 
Interior to offer the 181 Area of the Gulf of Mexico for oil 
and gas leasing, having considered the same, reports favorably 
thereon without amendment and recommends that the bill do pass.

                         PURPOSE OF THE MEASURE

    The purpose of the measure is to direct the Secretary of 
the Interior to offer for oil and gas leasing an area within 
the 181 Area as soon as practicable but not later than one year 
after the date of enactment of this Act.

                          BACKGROUND AND NEED

    S. 2253 directs the Secretary of the Interior to offer for 
oil and gas leasing certain parts within the 181 Area as soon 
as practicable but not later than one year after the date of 
enactment of this Act. The area to be offered for sale under S. 
2253 is at least 100 miles from any point on the Florida 
coastline. The area is not under congressional moratorium or 
Presidential withdrawal. Also excluded from oil and gas leasing 
under S. 2253 is any portion of the 181 Area that is east of 86 
degrees 41 minutes longitude (the ``Military Mission Line'') 
unless the Secretary of Defense agrees in writing before the 
area is offered for lease that the area can be developed in a 
manner that will not interfere with military activities. This 
provision seeks to address issues raised in a November 30, 
2005, letter from Secretary of Defense Donald Rumsfeld to 
Senator John Warner, raising concerns that drilling structures 
and associated development east of the Military Mission Line 
would be incompatible with military activities. The Minerals 
Management Service (``MMS'') has in the past attempted to 
address such concerns through a memorandum of understanding 
with the Department of Defense.
    On November 14, 1996, MMS announced that Secretary Bruce 
Babbitt had approved the 5-Year Program for oil and gas leasing 
on the Outer Continental Shelf (``OCS'') for 1997-2002. The 
plan included an intention to offer the entire 5.9 million acre 
area (geographically shaped like the state of Idaho) commonly 
referred to as the ``Original Lease Sale 181 Area'' or oil and 
gas leasing. This area is outlined in the MMS map below and 
labeled as ``Original Sale 181 Area Boundary.''



    The decision to include the Original Sale 181 Area in the 
5-Year Program was the culmination of an extensive consultation 
process by the federal government with coastal states and the 
public at large. This decision by the Clinton Administration to 
offer these lands for oil and gas leasing was made after 
negotiations with then-Florida Governor Lawton Chiles. This 
area included submerged lands within 15 miles directly off of 
Alabama's coastline in the area commonly referred to as the 
``stove-pipe.'' This stove-pipe area is excluded from oil and 
gas leasing under S. 2253.
    In preparation for oil and gas leasing in the entire 
Original Sale 181 Area, a Final Environmental Impact Statement 
was completed in June 2001 for the full area. On July 2, 2001, 
Secretary of the Interior Gale Norton proposed a Notice of Sale 
for oil and natural gas production in a modified 181 area 
(labeled on the map as ``Proposed Sale Area''). Secretary 
Norton stated, ``Our modified 181 area has been adjusted from 
5.9 million acres to 1.5 million. The adjusted area is at least 
100 miles from any portion of the Florida coast. For example, 
its northern border is more than 100 miles from Pensacola, 
Florida and its eastern edge is 285 miles from the shores of 
Tampa Bay.'' At the time of the Notice of Sale in 2001, the 
Department of the Interior projected that the adjusted area 
contained 1.25 trillion cubic feet of natural gas and 185 
million barrels of oil. The 2001 estimates for the entire 
Original Sale 181 Area (5.9 million acres) were 11.69 trillion 
cubic feet of natural gas and 1.87 billion barrels of oil.
    In its most recent resource assessment on the OCS, MMS 
noted, ``The OCS remains a significant potential domestic 
source of new natural gas resources from fields yet to be 
discovered.'' The MMS estimate for undiscovered technically 
recoverable gas resources on the OCS increased 16 percent when 
comparing the 2006 assessment with the 2001 assessment, and the 
volume of undiscovered oil resources increased 15 percent over 
that same time period.
    According to recent mean estimates from MMS, there are 930 
million barrels of undiscovered recoverable oil and 6.03 
trillion cubic feet of undiscovered recoverable natural gas in 
the entire 3.6 million acre area covered by S. 2253. In the 
approximately 725,000 acres east of the Military Mission Line 
(available for leasing under S. 2253 only with the approval of 
the Secretary of Defense), MMS estimates that there are 1.17 
trillion cubic feet of undiscovered, recoverable natural gas 
and 130 million barrels of undiscovered, recoverable oil.
    According to the Energy Information Agency, the United 
States consumed 22.2 trillion cubic feet of natural gas in 
2005, making the estimated resources covered in S. 2253 greater 
than 25% of the total natural gas consumed in the United States 
last year. Furthermore, the American Gas Association estimates 
that MMS assessments for the area covered in S. 2253 equals the 
amount of natural gas used to heat and cool approximately 6 
million homes for 15 years.
    On February 8, 2006, MMS released for comment a draft 
proposed 5-Year Plan for 2007-2012 Oil and Gas Leasing on the 
OCS. The Department of the Interior described this as the 
second step of a four-step process to developing a final OCS 
leasing plan.
    The Department of the Interior published Federal OCS 
offshore administrative boundaries in the Federal Register on 
January 3, 2006 (Federal Register Vol. 71, No.1). According to 
the MMS, the agency developed these administrative boundaries 
beyond State submerged lands for the purpose of agency 
planning, coordination and administrative purposes. As stated 
in the Federal Register notice, applying the principle of 
equidistance, MMS specifically designated these areas to better 
carry out its responsibilities and mandates under the Coastal 
Zone Management Act, the Outer Continental Shelf Lands Act and 
the Energy Policy Act of 2005.
    MMS stated its intention to realign the boundaries of the 
Central Gulf of Mexico Planning Area to correspond with the new 
offshore administrative boundaries. Under this revision, part 
of the Original Sale 181 Area, and the deepwater area to the 
south of that would be considered part of the Central Planning 
Area and could be considered for future oil and gas 
development. According to MMS, the re-designated Sale 181 Area 
included as part of the Central Planning Area is approximately 
2 million acres, in contrast to approximately 3.6 million acres 
under S. 2253.
    The Outer Continental Shelf Lands Act (OCSLA) specifically 
authorized the Secretary of the Interior to manage oil and 
natural gas and other marine minerals activity seaward of state 
submerged lands. Today, submerged lands within three nautical 
miles off the coastline fall within the jurisdiction of the 
individual states. Texas and the Gulf Coast of Florida (and 
unincorporated U.S. territory of Puerto Rico) are the 
exceptions, with state (or territorial) waters extending out to 
three marine leagues (nine nautical miles).
    There are over 8,200 producing and non-producing existing 
leases on the OCS, and about 4,000 offshore facilities. MMS 
estimates that there are 42,000 OCS personnel and 125 companies 
operating on the OCS. There are 46 million acres leased in the 
approximately 1.76 billion acre OCS (2.6%) and 33,000 miles of 
oil and gas pipeline. About twenty percent of this lease 
acreage is currently in production.
    Oil and gas production on the OCS provides approximately 
1.6 million barrels of oil per day, and 11 billion cubic feet 
of natural gas per day to the domestic market. Annually, this 
production amounts to over 600 million barrels of oil per year 
(30% of United States domestic production) and 4.7 trillion 
cubic feet of natural gas per year (23% of United States 
domestic production). According to MMS, the OCS contains more 
than 60% of the remaining undiscovered oil in the United States 
and as much as half of our nation's undiscovered, recoverable 
natural gas. MMS estimates that over the next five years, OCS 
production could account for more than 40% of domestic oil 
production and 23% of domestic natural gas production, mostly 
due to new discoveries in deepwater and at greater depths 
beneath the ocean floor.
    In addition to providing significant energy resources, 
activities on the OCS provide substantial revenues to the 
Federal Treasury, in the form of bonuses, rents and royalties. 
Activities on the OCS provide an average of over $6 billion per 
year in revenues to the Treasury.

                          LEGISLATIVE HISTORY

    S. 2253 was introduced by Senator Domenici for himself and 
Senators Bingaman, Talent and Dorgan on February 7, 2006. S. 
2253 was read twice and referred to the Committee on Energy and 
Natural Resources. On February 16, 2006, the Senate Committee 
on Energy and Natural Resources met in a full committee hearing 
to receive testimony regarding S. 2253. To date, twenty-four 
members of the Senate have cosponsored S. 2253. At the business 
meeting on March 8, 2006, the Committee on Energy and Natural 
Resources ordered S. 2253 favorably reported.

            COMMITTEE RECOMMENDATION AND TABULATION OF VOTES

    The Senate Committee on Energy and Natural Resources, in 
open business section on March 8, 2006, by a majority vote of a 
quorum present recommends that the Senate pass S. 2253.
    The roll call vote on reporting the measure was 16 yeas, 5 
nays, 1 present as follows:

------------------------------------------------------------------------
              Yeas                       Nays               Present
------------------------------------------------------------------------
Mr. Domenici                      Mr. Martinez        Ms. Landrieu
Mr. Craig                         Mr. Akaka
Mr. Thomas                        Mr. Wyden *
Mr. Alexander *                   Mrs. Feinstein *
Ms. Murkowski                     Mr. Menendez
Mr. Burr *
Mr. Talent
Mr. Burns*
Mr. Allen
Mr. Smith
Mr. Bunning
Mr. Bingaman
Mr. Dorgan
Mr. Johnson*
Ms. Cantwell
Mr. Salazar
------------------------------------------------------------------------
 * Indicates vote by proxy.

                      SECTION-BY-SECTION ANALYSIS

Section 1. Offshore Oil and Gas Leasing in 181 Area of the Gulf of 
        Mexico

    Section 1(a) provides definitions for the terms ``181 
Area,'' ``Military Mission Line,'' and ``Secretary.''
    Section 1(b) directs that, except as otherwise provided in 
this section, the Secretary of the Interior shall offer the 181 
Area for oil and gas leasing pursuant to the Outer Continental 
Shelf Lands Act (43 U.S.C. 1331 et seq.) as soon as 
practicable, but not later than one year, after the date of 
enactment of this Act.
    Section 1(c) excludes certain areas from the lease sale 
directed under section 1(b). These areas are only excluded, by 
this section, from the oil and gas leasing authorized under 
this Act.
    Section 1(d) provides that the 181 Area shall be offered 
for lease notwithstanding the omission from the 181 Area from 
any prior outer Continental Shelf leasing program under the 
Outer Continental Shelf Lands Act.

                   COST AND BUDGETARY CONSIDERATIONS

    The Congressional Budget Office estimate of the costs of 
this measure has been requested but was not received at the 
time the report was filed. When the report is available, the 
Chairman will request it to be printed in the Congressional 
Record for the advice of the Senate.

                      REGULATORY IMPACT EVALUATION

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out S. 2253. The bill is not a regulatory measure in 
the sense of imposing Government-established standards or 
significant economic responsibilities on private individuals 
and businesses.
    No personal information would be collected in administering 
the program. Therefore, there would be no impact on personal 
privacy.
    Little, if any, additional paperwork would result from the 
enactment of S. 2253, as ordered reported.

                        EXECUTIVE COMMUNICATIONS

    At a hearing before the Committee on Energy and Natural 
Resources on February 16, 2006, the Department of the Interior 
provided the following testimony with respect to S. 2253:

  Statement of R.M. ``Johnnie'' Burton, Director, Minerals Management 
                  Service, Department of the Interior

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to appear here today to discuss the area of the 
Federal Outer Continental Shelf (OCS) in the Gulf of Mexico 
commonly referred to as the ``Sale 181 area''. We appreciate 
the Committee's efforts to address our nation's domestic energy 
needs. S. 2253, calling for the expansion of leasing within the 
Gulf of Mexico of non moratoria areas closely resembles the 
draft 5-year proposed program released by the Department on 
February 8, 2006.
    The OCS Lands Act directs the Secretary of the Interior to 
make resources available to meet the nation's energy needs. The 
accompanying congressional declaration of policy states, ``The 
OCS is a vital national resource reserve held by the Federal 
Government for the public, which should be made available for 
expeditious and orderly development.'' The Administration has 
directed the Minerals Management Service (MMS) to meet this 
charge through specific policy initiatives provided in the 
President's National Energy Policy. This direction is all the 
more critical in the face of higher oil and natural gas prices 
and their impacts to our economy.
    As the Nation's offshore energy and mineral resource 
management agency, the MMS has a focused and well established 
ocean mandate--to balance the benefits derived from exploration 
and development of oil, gas, marine minerals and renewable 
energy resources with environmental protection and safety.
    The environmental record of the OCS program is outstanding. 
There has not been a significant platform spill in the last 35 
years. The Sale 181 area is a gas prone area and natural gas 
production offshore represents one of the most environmentally 
sound energy developments this country could propose.
    The oil and gas produced from the OCS plays a major role in 
supplying our daily energy needs, accounting for 30% of 
domestic oil production and 21% of domestic natural gas 
production. The Gulf of Mexico is the most prolific producing 
offshore region, providing 27% of the oil and 20% of the 
natural gas produced domestically. The share of Gulf of Mexico 
production is expected to rise within the next several years to 
about 23% of natural gas and 40% of oil domestic production.
Sale 181 area
    In 1999, MMS put out a call for information and notice of 
intent to prepare an environmental impact statement for a 
proposed Federal oil and gas lease sale in the area now 
referred to as the original Sale 181 area. This area, original 
Sale 181, included an area offshore of Alabama beginning 15 
miles south of the Alabama coast and an area offshore of 
Florida more than 100 miles from the Florida coast. It included 
1,033 lease tracts covering 5.9 million acres.
    In 2001, the Secretary of the Interior spent a great amount 
of time speaking with officials and citizens of the affected 
states around the original Sale 181 area. Based on those 
discussions, a decision was made to modify the 181 area that 
would be offered in the December 2001, lease sale and that 
would become available for leasing during the 5-Year Oil and 
Gas Leasing Program for 2002-2007. This modification reduced 
the acreage available for leasing in the Sale 181 area from 5.9 
million acres to 1.5 million acres. At the time, the Department 
projected the adjusted area contained an estimated 1.25 
trillion cubic feet of natural gas and 185 million barrels of 
oil.
    There have been three sales held in the modified Sale 181 
area. The first, Sale 181, held in December 2001; Sale 189 in 
December 2003; and Sale 197 in March 2005. The results of Sales 
were as follows:
    Sale 181: 95 leases were awarded, with total high bids of 
$340,474,113.
    Sale 189: 14 leases were awarded, with total high bids of 
$8,376,765.
    Sale 197: 10 1eases were awarded, with total high bids of 
$6,595,753.
    There have been a total of 26 exploration wells drilled on 
the leases in this area. The first discovery on leases issued 
in these recent sales was announced in 2003 with seven 
additional discoveries subsequently announced. These 
discoveries are predominately natural gas.
    Five independent exploration and production companies and a 
mid-stream energy company have come together to facilitate the 
development of multiple ultra-deepwater natural gas discoveries 
located in the Central and Eastern Gulf of Mexico, including 
all of the 7 discoveries mentioned above. The fields' water 
depths range from 7,800 to 9,000 feet. The production from 
these discoveries will be tied-back to a central platform, 
Independence Hub, which will be located on unleased Mississippi 
Canyon Block 920 in the Central Gulf. First production is 
expected in 2007.
5-Year Program for 2007-2012
    In August 2005, the Department began the process of 
developing the next 5-Year Oil and Gas Leasing Program 2007-
2012 by requesting comments on all OCS areas, including the 
Sale 181 area. On February 8, 2006, the Department announced 
its draft proposed program for the 5-year OCS Oil and Gas 
Leasing Program 2007-2012. This was the second step in a 5-step 
process which affords substantial opportunity for public 
comment. Under the draft proposal, the MMS would plan on 
conducting a lease sale in a larger part of the original Sale 
181 area in the fall of 2007.
    On January 3, 2006, the Department published in the Federal 
Register revised administrative lines that differentiate 
Federal waters of the Eastern, Central and Western Gulf of 
Mexico. These lines were drawn on the principle of 
equidistance. It is now clear which area of Federal waters is 
off the coast of each state. These lines are purely 
administrative with no legal effect on civil or criminal 
jurisdiction. We published the lines because the OCS is more 
and more subject to multiple-use activities, and it became 
timely to delineate zones of interest of coastal states in 
Federal waters.
    The draft proposal includes consideration of leasing in an 
expanded area within the original Sale 181 area. The expanded 
area is approximately 2 million acres now located within the 
Central Gulf Planning Area under the new administrative lines. 
This area is in addition to the 1.5 million acres within the 
original Sale 181 area already offered for leasing under the 
current 2002-2007 5-year program.
    MMS estimates that most of the prospective tracts in this 
area would be leased out within 5 years, under annual sales, 
and that the first production would occur within 5 years of the 
first sale.
    The Sale 181 area, which we believe has a huge potential 
for natural gas and oil resources, is not under Congressional 
moratorium or Presidential withdrawal. Nevertheless, in 
accordance with the Secretary's commitment, the draft does not 
propose any leasing within 100 miles of the coast of Florida, 
including that portion of the Sale 181 area which is now in the 
Central Gulf Planning Area. No lease sale is proposed in the 
Eastern Gulf Planning Area. This respects the commitment made 
by the Secretary, which was reiterated in the August 2005 
Request for Information, that the Secretary ``had no intention 
of offering for leasing areas in the Eastern Gulf of Mexico 
Planning Area within 100 miles of the coast of the State of 
Florida.''
    In addition, the area proposed for leasing is west of the 
Military Mission Line (86 degrees, 41 minutes West longitude) 
and would not interfere with military readiness or training. We 
work extensively with the Department of Defense on all oil and 
gas leasing on the OCS and envision this relationship to 
continue with future leasing decisions.
    The draft proposed program would continue to schedule 
annual area-wide lease sales in the Central and Western Gulf 
Planning Areas, as has been the customary practice.
    The area south of the original Sale 181 area that is west 
of the new administrative line has been included for analysis. 
This area is currently under both Presidential withdrawal and 
Congressional moratorium; both of these would need to be 
removed before this area could be offered for lease. It is 
estimated that there could be 700 million barrels of oil and 
3.68 trillion cubic feet of natural gas in this area. This area 
warrants further analysis and consideration in order to inform 
future decisions as to whether or not to include the area in 
the final program. Therefore, the draft proposed program notes 
that subsequent annual Central Gulf sales may consider the area 
to the south. No sale will be held unless the moratorium is 
discontinued by Congress and the Presidential withdrawal is 
modified. In addition, pursuant to Section 18 of the OCS Lands 
Act, no sale will be proposed until all affected states have 
the opportunity to comment.
2006 Resource assessment
    Concurrent with the draft proposed program, MMS released 
two documents: (1) Assessment of Undiscovered Technically 
Recoverable Oil and Gas Resources of the Nation's Outer 
Continental Shelf, 2006; and (2) the Report to Congress: 
Comprehensive Inventory of U.S. OCS Oil and Natural Gas 
Resources, which was sent to Congress. These documents report 
MMS's new estimates for the total endowment of technically 
recoverable oil and gas resources for the entire OCS, including 
areas under Congressional moratoria or Presidential withdrawal. 
In the draft proposed program for 2007-2012, numbers were 
predicated on the 2003 estimates. These numbers will be updated 
in the proposed program that will be released in the summer of 
2006. MMS periodically updates its resource assessments to 
include any new data and information, incorporate advances in 
exploration and development technologies, and use new 
assessment methods. MMS did not directly acquire or contract 
for the acquisition of new seismic data or the drilling of 
wells. All of the data used was commercial data or published 
scientific research.
    The Department has completed eight comprehensive resource 
assessments since 1976. During this timeframe, the magnitude of 
resources believed to be technically recoverable continued to 
grow with each assessment in those areas with leasing activity.
Estimates for the sale 181 area
    MMS has examined the resource potential of the Sale 181 
area under the 2003 interim update. Based on those assessments, 
we have estimated that the portion of the Sale 181 area east of 
the area currently available for lease has a potential of 930 
million barrels of oil and 6.03 trillion cubic feet of gas. 
This is the area proposed in S. 2253. By contrast, the new area 
included in the Draft Proposed Program for 2007-2012 is 
estimated to contain 530 million barrels of oil and 3.42 
trillion cubic feet of gas.
S. 2253
    Mr. Chairman, I will now turn to S. 2253, the legislation 
that you, along with Senators Bingaman, Talent and Dorgan, 
introduced last week. The legislation would require the 
Secretary of the Interior to offer a large portion of the Sale 
181 area for oil and gas leasing within one year of enactment. 
We support the goals of the legislation and we appreciate your 
efforts to make additional energy resources available for our 
nation. This proposal would make 3.6 million acres available 
for lease while maintaining a 100 mile buffer zone along the 
Florida coast. Leasing in the area east of the Military Mission 
Line, an area of approximately 725,000 acres, would be subject 
to the agreement and approval of the Secretary of Defense.
    The work MMS must conduct to comply with the National 
Environmental Policy Act, Marine Mammal Protection Act, 
Endangered Species Act, and Coastal Zone Management Act is very 
similar for the sale included in its draft proposed oil and gas 
leasing program as for the lease sale called for in S. 2253. 
Mr. Chairman, we look forward to working with you and your 
staff on this legislation.
Conclusion
    This Administration and the Department of the Interior 
remain committed to ensuring that the OCS remains a solid 
contributor to the nation's energy needs. The relative 
contribution from federal offshore areas will increase in the 
upcoming years due to activity in the deep water areas of the 
Western and Central Gulf of Mexico.
    Mr. Chairman, this concludes my statement. Please allow me 
to express my sincere appreciation for the continued support 
and interest of this committee for MMS's programs. It would be 
my pleasure to answer any questions you or other members of the 
Committee may have at this time.

                        CHANGES IN EXISTING LAW

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee notes that no 
changes in existing law are made by the bill S. 2253, as 
ordered reported.