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Through new safety regulatory and enforcement procedures, the development of new and improved technology is to be encouraged so as not merely to reduce, but rather to minimize, and possibly eliminate, risks to the environment.

States and local areas within States, which are impacted by OCS exploration and development are to be provided with comprehensive assistance to anticipate, plan for, and ameliorate any temporary or permanent adverse impacts, thus insuring adequate protection for the quality of life in affected areas. Such assistance must include timely access to information, an opportunity to participate in the formulation of policy and planning decisions, and an opportunity to actually review and comment on final decisions.

The 1977 amendments are also intended to establish procedures to minimize, and hopefully eliminate, conflicts which may occur between those seeking to explore, develop and produce oil and natural gas and those seeking to recover other natural resources, such as fish and shellfish.

To protect public and private interests from the effects of a possible oil spill, the 1977 amendments establish an oil spill liability fund to pay for the prompt removal of oil spilled or discharged, and for any resultant damages.

Finally, in establishing a leasing program for the future, in specifically selecting sites for leasing, and in authorizing any public or private exploration, the Federal Government must insure prompt assessment of the total amount of oil and natural gas to be found on the Shelf.

TITLE II-AMENDMENTS TO THE OUTER

CONTINENTAL SHELF LANDS ACT

This title contains a series of amendments to the Outer Continental Shelf Lands Act of 1953 (43 U.S.C. 1331-43) ("OCS ACT"). Section 201.-Definitions

This section amends section 2 of the OCS Act by modifying one term and adding definitions for thirteen new terms.

New definition of Lease" Subsection (a) changes the term “mineral lease,” in the OCS Act of 1953, to "lease” so as to more properly describe the authorization for exploitation of oil and gas or other mineral resources.

"Lease” has been defined to make it explicit that the Secretary of the Interior has the power to lease geothermal resources on the ÖCS.

In addition, subsection (a) defines lease so as to not only allow leases for exploration, development, and production, but also to allow a leasing system involving separate leases for exploration and then for subsequent development and production. When read in conjunction with section 8(b) (4), as amended by the 1977 Act, such a leasing system could be a “dual leasing system”, in which a lease for exploration would not include any right to subsequently develop and produce the resources discovered, or a two-tiered leasing system in which a lease could be awarded for exploration and include a right to subsequently develop and produce the resources on a portion of the lease

area.

94-224-77

In recommending the “dual leasing option", 41 the Secretary of the Interior described the procedure as follows: The Government would offer exploration leases to private firms who would manage and conduct exploratory drilling. Such leases would be awarded by competitive bidding under regulations promulgated in advance as required by Section 8(a) of the OCS Act. The bidders for these leases would bid to become partners with the government, with the government paying a share of the costs of exploration, and the bidder assuming the rest of the costs in return for a percentage of the bonus or other Government revenues received from the sale of subsequent leases which would allow the continued exploration, development and production. The "bid-factors” could be the percentage of the costs to be assumed by the bidder or the percentage of the revenues to be received later by the bidder, or both. The terms of the sharing of exploration costs and revenues from subsequent bids and the conditions governing the decision to sell development leases would, of course, be spelled out in the exploratory lease.

Under this leasing system, the information collected would be made available to all potential bidders and to the public. The Secretary of the Interior has stated that use of such information may have three main benefits. First, use of such system would provide a way of acquiring exploratory data for planning purposes, environmental decisions, and coastal State review, without an extensive Government managed exploratory drilling program and therefore, at lower cost to the Government. Second, use of such system could provide a more rational bidding system. If information is collected with proper consideration for payoff, the availability of such information should reduce future bids on poor prospects and increase them on good prospects. Finally, use of the system could encourage greater competition for development and production of leases because smaller firms who might not otherwise bid because of the great risks, will know more about the prospects available.

The second alternative leasing system possible under this new definition of "leases” is a two-tiered lease, where a lease would be awarded on the basis of competitive bids and would grant the right to fully explore a lease area and then develop a portion of a lease area. As presently utilized in Australia under the Petroleum (Submerged Lands) Act of 1967, and in Canada under the Canadian Oil and Gas Regulations, off-shore areas are exploited in two steps.

An exploratory permit is awarded that grants the holder the right to comprehensive exploration within the permit area. After exploration, the permit holder selects a portion (usually one-half) of the permit area to which he is entitled to obtain a lease or license for development and production. The remainder is returned to the Government which can then award a separate lease or license, for development and production for that area.

As these two new leasing procedures were untested in the United States, the committee strongly believed that Congress should have

42

41 This dual leasing system was first considered in the early 1970's by the Nixon and Ford Administrations as a special program for frontier areas. See “J. Whitaker, Striking a Balance Environmental and Natural Resources Policy in the Nixon-Ford Years (1976).”

42 For a more detailed description of these systems, see “M. Crommelin, Off-shore Oil and Gas Rights: A Comparative Study in Natural Resources" 14 Natl Res. J. 457, 471-83 (1974).

an opportunity to take a look at any proposed leasing system that separated exploration rights from any or all development rights.

First, the committee expects, and the Secretary of the Interior has agreed," that use of this new authority would be included in a future appropriation request, subject to scrutiny by the Budget and Appropriation Committees and then both Houses of Congress. Second, by an amendment to section 8(b) (4) of the OCS Act, the committee made it explicit that any proposal to offer a lease just for exploration, or just for development and production or for exploration and partial development and production must be submitted to Congress which would have thirty (30) days to review the proposal. Congress, by a joint resolution of disapproval, could then prohibit issuance of such a lease.

Additional definitions Subsection (b) adds new terms, including "coastal zone”, derived from the Coastal Zone Management Act of 1972 as amended. (16 U.S.C. 1451 et seq.)

The subsection also defines "affected State.” Throughout the Outer Continental Shelf Lands Act Amendments of 1977, States that are affected by any particular activity are given the opportunity to review, comment on, participate in, and make recommendations as to decisions relating to that activity. To determine those States the term "affected State", has been defined. The term is not a general designation for all actions and decisions. Rather, it is a specific description related to a particular provision, plan, lease, or other activity. With respect to any activity, an affected State is: (1) One whose civil and criminal laws pursuant to section 4(a) (2) of the OCS Act, are applicable to the area where the activity is conducted; (2) which is connected to an OCS structure; (3) which is designated by the Secretary of the Interior as being substantially impacted because it receives OCS oil and gas for processing, refining or transshipment; (4) which is designated by the Secretary of the Interior as having a substantial probability of being significantly impacted, damaged or changed; or (5) which is found by the Secretary of the Interior to bear a substantial risk of serious damage from an oil spill or blowout.

Specific definitions have been added for "marine environment" for conditions affecting the marine ecosystem; for "coastal environment" for conditions affecting the coastal zone ecosystem; and for "human environment” for conditions determining the quality of life of those areas affected directly or indirectly by OČS-related activities.

“Governor” is defined to include any person or entity designated by or pursuant to State law to exercise the powers granted to a Governor in either the 1953 OCS Act or in the 1977 Act.

Definitions have been included for "exploration” to include geophysical surveys and drilling, including drilling of delineation wells after a discovery; for development” to include geophysical activity, drilling, platform construction, pipeline routing, and the operation of on-shore support facilities, after discovery of minerals; and for “pro

43 In a letter to the Senate Committee on Energy and Natural Resources, dated July 8, 1977, the Secretary of the Interior stated that "use of this authority (for dual or twotiered leasing) would require an appropriation, giving Congress an opportunity to judge the merits of any such system.”

duction” to include removal of resources, transfer to shore, and workover drilling

Although the committee sought to define these terms to cover mutually exclusive sets of activities, the committee recognizes that often they involve continuous and overlapping processes. The purpose of these definitions is to identify the point, after exploration and before development, beyond which actively under a lease cannot proceed without an approved development and production plan, as described in section 25 of this act.

A definition is included for “anti-trust.” Specific findings, purposes and policies are enumerated in the Acts to preservation of free enterprise competition. To carry out this goal, the 1977 amendments asks the Attorney General and, in some instances, the Federal Trade Commission, to review and comment on a proposed leasing program, or regulations, and requires the Secretary of the Interior to consult with the Attorney General and the Federal Trade Commission in preparing portions of his annual report dealing with the promotion of competition. Review, comment, recommendations and reporting are to be based on evaluations of activities in light of anti-trust laws. The definition of "anti-trust” has been included to detail those statutes to be considered by the Attorney General and the Federal Trade Commission.

“Major Federal action” is defined to refer, for purposes of application of the procedures under the National Environmental Policy Act of 1969 ("NEPA"), to the term in NEPA“major Federal actions significantly affecting the quality of the human environment” (Section 102(2) (c); 42 U.S.C. 4332(2) (c).)

“Fair market value” is defined in order to provide a framework for the distribution of oil and natural gas obtained as a royalty or net profit share, or purchased by the Federal Government, as described in section 27."Fair market value”, which is to be a basis for such distribution if there is no regulated price, is to be the averaging of the price computed according to existing sales, or if there are no sales, an appropriate price determined by the Secretary. This definition is similar to that for "market price” in OCS royalty oil regulations, presently used in the sale of such oil (30 CFR 225a.2(i)).

Finally, subsection (b) adds a new definition for "frontier area." Throughout the 1977 Act, specific requirements and procedures have been established for lease sales and activities in previously undeveloped OCS areas. For example, the Secretary of the Interior is required to use new alternative bidding systems, and to provide for a comprehensive review of development and production proposals in such areas. This new definition makes it explicit that these requirements and procedures apply to all leasing areas, as that term is presently defined in present OCS regulations, rules and maps (43 C.F.R. 3301), where there has not been any development, as of October 1, 1975. Thus, although lease sales have been held off Southern California (OCS Sale No. 35—December 11, 1975) and off the Maryland, Delaware, and New Jersey Coasts, more commonly known as the Baltimore Canyon (OCS Sale No. 40-August 17, 1976),44 these areas are still "frontier areas"

44 Lease Sale No. 40 was declared invalid and void by a Federal District Court in County of Suffolk et al. v. Secretary of the Interior et al., Civil Action No. 75-C-208, 7 Envt'l L. Rptr 20230. (E.D.N.Y. 1977) on February 17, 1977. That decision has now been reversed by the United States Court of Appeals for the Second Circuit. It is not known if future appeal to the Supreme Court will be taken. Nothing in this analysis should be interpreted to indicate an opinion by the Committee as to the validity or invalidity of Lease Sale 40. The Committee seeks ly to make it expli that if such sale is valid, the area covered by such sale is still a "frontier area."

as there has not been, as of October 1, 1975, any development on the lease tracts awarded and, therefore, the provisions of the 1977 Act applicable to “frontier areas” would be applicable to the activities undertaken pursuant to the leases awarded after those sales.

In addition, this new definition makes it explicit that those leasing areas, such as in the Gulf of Mexico, as defined in regulations, rules, and maps, where there has been development prior to October 1, 1975, are not “frontier areas.

Finally, the committee determined that the Santa Barbara Channel should also be considered a “frontier area.” Although leases were awarded and exploration, development, and production commenced in portions of the Channel in the 1960's, less than ten percent (10%) of potentially recoverable reserves have been extracted. The Santa Barbara Channel, the Committee felt, is unique. It is the only OCS area which had a major oil spill in 1969—resulting in great public clamor and a suspension, until recently, of all activities. Less than half the tracts in the Channel have been leased (66 of 139) and all those were leased prior to suspension of activities in 1969. Finally, what oil and gas that has been produced have been largely from only two fields-Dos Cuadras and Carpenteria-in the entire Channel. Because of the special environmental and other characteristics of the Channel and the demonstrated risks and problems affecting the coastal areas adjacent to the Channel, the Committee believed that it is, in fact, a “frontier area” entitled by its special nature, to all protections and procedures applicable under the 1977 Act to such areas. Section 202.-National Policy

Section 202 amends section 3 of the OCS Act, originally a jurisdictional provision, and makes it into a declaration of national policy, The original provisions of section 3, providing that the subsoil and seabed of the OCS belong to the United States and that all existing rights of navigation and fishing in OCS waters are to be continued, are restated.

In addition, policy statements are included to make it clear that in administering not only the Outer Continental Shelf Lands Act, but also any other act applicable, directly or indirectly, to activities on the Outer Continental Shelf, responsible Federal officials must insure that activities on the shelf are undertaken in an orderly fashion, so as to safeguard the environment, maintain competition, and take into account impacts on affected States and local areas. These officials are also to consider the needs of affected States and local areas for information, participation and assistance so they can protect themselves from any temporary or permanent adverse affects of activities, and are to preserve the rights and responsibilities of all States and where appropriate, local areas, to protect their environment through their own regulatory procedures.

Finally, responsible Federal officials must insure that operations in the Outer Continental Shelf are safe. In making decisions at to the approval of exploration, development and production, and in assuring compliance with safety and environmental regulations, the officials are to require that activities and operations are conducted by well-trained personnel, and that such personnel use adequate techniques and precautions to prevent or minimize blowouts, loss of well control, fires, spills, interference with other users, and other possible damage.

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