The Obama administration said that while it supports the overall goals outlined in a bill that would allow the Department of Interior (DOI) to conduct offshore oil and natural gas lease sales via the internet, it doesn't think a new system can be in place within a stipulated one-year timeframe.
The bill, HR 5577, also known as the Innovation in Offshore Leasing Act, calls for amending the Outer Continental Shelf Lands Act by authorizing the DOI secretary to conduct live offshore oil and gas lease sales over the internet.
"Trends have changed significantly in terms of how we do business in the U.S.," Rep. Garret Graves (R-LA), the bill's sponsor, told the House Subcommittee on Energy and Mineral Resources on Wednesday. "Providing the transparency available through doing internet lease sales is something that's very helpful, increases competition but ultimately will increase value to taxpayers."
But DOI’s Walter Cruickshank, deputy director of the Bureau of Ocean Energy Management (BOEM), said the government had "concerns" with the bill. "Many of the bill's provisions reflect our current lease sale process, but the prescriptive nature of some of these provisions could reduce BOEM's flexibility to make future improvements.
"We believe that the bill's one-year timeframe for implementation of an internet-based lease sale process is problematic. BOEM supports the overall intent of HR 5577 and would like to work with the subcommittee to address our concerns as we move forward with this legislation."
HR 5577 stipulates that "not later than one year after the date of the enactment of this act, the DOI secretary shall conduct at least one internet-based lease sale...for leasable acreage in the Gulf of Mexico [GOM]."
Rep. John Fleming (R-LA) pressed Cruickshank on the government's complaint that the bill would impact its ability to be flexible. He also mentioned the DOI's Bureau of Safety and Environmental Enforcement (BSEE).
"It would appear that the shoe is on the other foot, and it doesn't fit well," Fleming said. "That's the constant complaint that industry has about the BSEE -- the lack of flexibility, the prescriptive nature of your organization. It seems that you want flexibility, but you're not offering that to industry."
Cruickshank said although he could not speak for the BSEE, the BOEM has begun looking at electronic bidding systems and been in contact with the oil and gas industry, particularly with the companies that participate in lease sales.
"We recognize that for a lease sale to be successful, the companies have to be comfortable with the system and willing to bid," Cruickshank said. "That's going to be very important, to be able to work with them to devise a system that will keep their interest in OCS lease sales. There was a point or two in the bill that would lock us into a particular approach, which might be fine right now but which over time as technology improves we might want to alter."
Last March, a group of protesters attempted to disrupt two GOM lease sales (see Daily GPI, March 23). According to Cruickshank, BOEM is "seriously considering the use of live-streaming to provide public viewing for the next lease sale." That event would be Lease Sale 248 in the GOM's Western Planning Area, which is scheduled for Aug. 24.
National Ocean Industries Association President Randall Luthi said last March’s lease sale "teetered on the verge of being a circus," but commended the DOI and BOEM with continuing to read the bids despite attempts to disrupt the sale.
"I do not believe the poor behavior of the protesters should be rewarded by discontinuing the current sale procedure, but that is certainly a factor to be considered in this evaluation," Luthi said. "If technology provides a better way, then policymakers should consider making the change."
He urged lawmakers to keep an internet-based system "cost effective, transparent and secure," adding that bids must be kept confidential. "Nothing will erode the public and bidder confidence faster than those submitted bids being leaked before being released to the public.
"As one of the many people who thought their personal information was secure in the arms of the federal government only to find it hacked on multiple occasions, I emphasize the importance of cyber security in this process."
Jon Hrobsky, policy director for Washington, DC-based law firm Brownstein Hyatt Farber Schreck LLP, seized upon a section of HR 5577 that stipulates "an independent, third-party observer” from the DOI's Office of the Inspector General [IG] has to be “present during the bid reading process to prevent wrongdoing, independently certify the bidding process, and maintain transparency."
Hrobsky said that while he supports having someone outside the DOI verify the bidding process, there is a downside. "By placing the IG in an operational role, the legislation may inadvertently frustrate the IG's office's ability to be independent should they need to investigate an irregularity in a future sale. There are a number of officials that could be assigned the duty and act independently of the BOEM -- including a designee of the DOI's solicitor -- while still ensuring the IG's independence."
EnergyNe.com Inc. CEO William Britain, whose Amarillo, TX-based company conducts online lease sales for the government and the oil and gas industry, said that since 2009 "our industry and agency clients have experienced multiples of three- to four-times their expected value as the outcome of utilizing internet sales." EnergyNet was awarded a contract by the BLM to conduct a pilot sale in Colorado in 2009.
HR 5577 was introduced by Graves on June 24. It was subsequently referred to the House Committee on Natural Resources.