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MMS Tries to Get Regulations Out the 'Spigot' in Final Bush Days

Before turning over the reins to the Obama administration, Interior Department's Minerals Management Service (MMS) plans to issue a draft proposed five-year program for 2010-2015 leasing in the Outer Continental Shelf (OCS), final revenue-sharing regulations for Gulf of Mexico coastal states and a rule on alternative energy development in the OCS, said MMS Director Randall Luthi last Tuesday.

Some might refer to these last-minute actions as "midnight regulations," he told the OCS Policy Committee meeting in Herndon, VA. "Usually it's characterized as you're trying to force everything out that spigot to make sure [you] get as many regulations approved as possible. That's partially true. The other part of it is no one is more efficient until they have a real deadline. And I'll tell you Jan. 20 is a real deadline."

The agency expects to have the draft proposed five-year leasing program, which could include development throughout the OCS, issued in early January. However, the subsequent steps -- a proposed leasing program, final environmental impact statement (EIS) and possible congressional review of the program -- would be up to the Obama administration, which Luthi conceded could conceivably shelve the entire program.

"We've actually jump-started the process by a couple of years," Luthi said. And if everything goes according to plan, the OCS leasing program would come out in 2010. The MMS kicked off the process in late July by publishing a call for information for the development of the new five-year program (see NGI, Aug. 4).

He further said that revenue sharing regulations for four Gulf coastal states, which were required under the Gulf of Mexico Energy Security Act of 2006 (GOMESA), were "cleared by me" last Monday. "The only thing that should hold these regulations up now would be just a publication question of the Federal Register. So we're hoping those are out by the end of December."

The regulations would require that between fiscal year (FY) 2007 and FY 2016, 37.5% of all revenue including bonus bids, rental and production royalties will be shared among four coastal states (Texas, Louisiana, Mississippi and Alabama) and political subdivisions for new leases in 0.5 million acres in the eastern Gulf and 5.8 million acres in the Central Gulf.

A second part of the regulations, which MMS would promulgate within two years, addresses revenue sharing from 2017 and beyond, Luthi said. The four Gulf coastal states and political subdivisions would share 37.5% of revenues from all Gulf leases issued after Dec. 20, 2006.

"The president's recommendation, and certainly it's been ours as well, [is] that if we open up other areas of the Outer Continental Shelf...that Congress should also provide revenue sharing for those states as well," he said.

He hopes the Obama administration and Congress do not reinstate the moratorium on drilling off the East and West Coasts. "It would be my recommendation that you do not rush to reimpose the moratorium...Let's give it some time for the process to work," he said during a briefing with reporters later.

"GOMESA has set an example of how you can go [with] royalty sharing," Luthi said, adding that he hopes the upcoming administration will follow through on this.

In addition, he said the agency was "well on our way" to issuing a rule for the development of alternative energy on the OCS in early January "before we take off." However, there is a fly in the ointment. Luthi said MMS and the Federal Energy Regulatory Commission are at odds over who would have jurisdiction over hydroelectric projects in the offshore. He believes the Energy Policy Act of 2005 gives MMS the authority over this area. The two agencies have been unable to reach an agreement, and it might be headed for the courts.

A draft EIS is completed for wind energy development on the OCS, and the MMS is "hopeful it will pop out by the end of the year," Luthi said.

He noted that MMS met with Virginia officials in Williamsburg, VA, recently to discuss the proposed lease sale off the state's shoreline in 2011 (see NGI, Nov. 17). "If you're going to make this work, it's all about partnership." The proposed sale area, which is at least 50 miles offshore and covers 2.9 million acres in water depths of 100 feet to 10,000 feet, is believed to contain 1.14 Tcf of natural gas and 130 MMbbl of crude oil, according to the Interior Department.

As for other coastal states that are interested in lease sales, Georgia also "has actually gone through the steps about the potential of Outer Continental Shelf development," and North Carolina has forwarded "interesting comments" about the state overseeing a leasing program off its coastline, Luthi said.

He said he was in the dark about who would succeed him in an Obama administration. "Every time I come [into my office], I've not had someone there looking at the chair." Luthi said he believes the "logical choice," if only as acting director, would be Walter Cruikshank, currently MMS deputy director. Nor, he noted, did he have any inside knowledge as to who President-elect Obama planned to pick for Interior secretary.

He said he and Interior Secretary Dirk Kempthorne "were committed to as smooth [a] transition as possible" so the Obama team can "hit the ground running" in January.

"I can't tell you what my legacy will be, "Luthi said, but he added that it may be that he has left the royalty-in-kind (RIK) program in "better shape" than what he found it. In September Interior Inspector General Earl E. Devaney issued three scathing reports that documented drug usage and sex among former employees of the agency's RIK program, as well as contract misdealing and accepting gifts from industry (see NGI, Sept. 15).

"I have made it very clear to our RIK people [that] they are like everyone else in the federal government. They have to comply with the gift-giving and gift-receiving restrictions that everyone else does," and an array of ethical guidelines, he said. The impression that the rules do not apply to RIK employees "is no longer there."

The RIK program -- which allows producers to pay royalties with oil or natural gas product -- has "certainly had its growing pains," Luthi said. The advantage of RIK vs royalty-in-value (RIV, or paying royalties in cash) is that "it has fewer moving parts." While the RIK program is "simpler to administer than RIV," it will never take the place of RIV completely, he noted.

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