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twenty per centum, these resources can be distributed as under ordinary procedures. It is intended that the procedures for offering these resources would be the same as presently applied, and readopted in the 1977 amendments, to federal royalty or net profit share oil.

Certain other specific provisions are required to be included in any lease. A lease is to provide that the lessee pay the value as determined by the bidding system utilized in the sale of his lease; to provide that the Secretary may suspend or cancel the lease in circumstances described by regulations issued pursuant to this Act; to require that the lessee exploit the resources in his lease area with due diligence and in accordance with the development and production plan approved by the Secretary of the Interior; and to provide for payments of rentals. In addition, other provisions may be included in a lease prescribed by the Secretary at the time of offering the area for lease.

Due diligence requirements Subsection (b) requires the Secretary to include as a lease term a requirement of diligence in activities. This provision is intended to assure expeditious and proper activity. With specific regard to 10 year leases, it is intended that enforcement of this diligence requirement would limit concerns raised before the committee about the possibility of non-assiduous exploration.

Similarly, subsection (d) requires that the Secretary of the Interior make a finding that any lessee, about to be awarded a lease, is complying with all the due diligence requirements on all leases currently in his possession. Unless such a finding is made, a new lease may not be granted.

The purpose of this subsection, and the purpose of the earlier provision in subsection (b)(2), requiring due diligence as a lease term, is to supplement those subsections dealing with cancellation of a lease for failure to comply with applicable regulations, such as those providing for rates of production. No company should be able to withhold resources from the Outer Continental Shelf by improperly shutting in wells or delaying exploration or production. If à lessee acts in conformance with an exploration plan or development plan, as defined by regulation, and approved by the Secretary, he is, of course, acting with due diligence and would not be deprived of a lease.

It is intended that the prohibition on the granting of a lease because of lack of due diligence on other leases would be in effect only as the company continues in violation of due diligence requirements. Thus, any potential lessee is not disqualified from participation unless his own current actions indicate that he is unwilling or unable to abide by the provisions of this Act, appropriate regulations, and appropriate lease terms, which describe due diligence.

In addition, it is intended that in joint ventures, innocent parties would not be punished by the activities of their partners. Subsection (d) specifically authorizes an action for damages, under the procedures of section 23(b) of this Act, against responsible partners by blameless

ones.

Limitation on transfer The 1953 OCS law does not specifically provide conditions or terms for the transfer, by sale or otherwise, of a lease. Interior Department

regulations do specifically provide for Department approval of any assignments or transfers, but do not provide for any further governmental input. 43 C.F.R. 3305.1 to 3305.4.

The committee was aware that statutory law provides for the approval of the Secretary of Interior for assignment or transfer of any on-shore federal mineral lease 30 U.S.C. 184. The committee, therefore, adopted a statutory requirement that off-shore lease assignment or transfer also be subject to approval by the Secretary.

In addition, subsection (d) would allow renegotiation prior to approval of any transfer or assignment. Such renegotiation would be, of course, only if appropriate in the public interest. As these assignments, transfers, or exchanges could be procedures to avoid or lessen the impact of competitive procedures under this Act, such renegotiation or disapproval power might be essential to insure adequate competition. As with other issues or rules or decisions affecting competition under the 1977 amendments, the Secretary is directed to consult with and consider the views of the Attorney General and the Federal Trade Commission as to approvals of transfers or assignments.

Federal-State overlapping jurisdiction-common pools or traps Subsection (f) is intended to establish a procedure for the orderly and efficient leasing and development of Federal Outer Continental Shelf lands contiguous with state tidelands. While the issue of jurisdiction over offshore lands has been resolved by the U.S. Supreme Court in United States v. Maine, 420 U.S. 515, 95 S. Ct. 1155 (1975), the problem of drainage of state resources by a lessee operating on the Outer Continental Shelf has not been so resolved.

Subsection (f) provides that, at the same time he solicits nominations for the leasing of lands within 3 miles of the seaward boundary of the coastal State, the Secretary is to notify the Governor of that coastal State of the areas to be offered for leasing, characteristics of the region, the best estimate of the amount of reserves in the areas proposed for leasing, and the existence of any fields or geological structures or traps in that area, but that overlap State tidelands.

Specifically, under this provision, the Secretary of the Interior must supply "all information," about the characteristics of the adjacent zone. This information would not be of an unlimited scope, but rather would be limited to the geographical, geological, and ecological characteristics deemed relevant and important in an evaluation by the coastal states as to agreeing to special arrangements as to a lease.

The requirement that all information” be supplied must be read in light of section 26, requiring regulations as to confidential or privileged information. Regulations as to confidentiality, to be prepared pursuant to section 26, should require that the Secretary make a preliminary determination, as promptly as possible and certainly no later than immediately after soliciting nominations for an area, as to whether a proposed Federal lease area contains a field or geological structure or trap that extends into State tidelands. Only if the existence of such a common formation is so determined, all information, including otherwise confidential or privileged data, is to be made accessible to the Governor or his designated representative. Knowledge so obtained would be subject, under section 26, to applicable Federal confidentiality provisions. Individuals securing permits, or other

area, as with

authorization, to conduct pre-lease studies would, through these regulations, be aware of this límited pre-lease availability. Thus, a Governor would have the same information available as the Federal Government, and private survey and exploration firms would be assured of confidentiality.

If the Secretary of the Interior believes that an area nominated for leasing contains a field, structure or trap which may be located both within Federal and State-owned lands, he is to offer the Governor of the appropriate coastal State the opportunity to enter an agreement, prior to the lease sale, as to the disposition of revenues from that lease.

The Governor then has 90 days to determine whether he wishes to participate. If the Governor declines the offer, the Secretary may lease the area. If the Governor accepts the offer, the Secretary and the Governor are to meet to work out mutually acceptable terms of a lease. As this is a lease authorized under the OČS Act, it, of course, must be consistent with the provisions of the Act and applicable regulations. Additional terms should be included in the lease, to the maximum extent practicable and, so as to comply with State law, so long as they cannot reasonably be said to be inconsistent with Federal law. If mutually acceptable terms of a lease are agreed upon by the Secretary and the Governor, the Secretary will then, under those terms, offer such area for lease. If, after a reasonable period of time, such mutually acceptable terms are not able to be agreed upon, the Secretary of the Interior may lease the

any

other lease area. This special lease procedure does not introduce arbitrary delays. The natural time-lags which exist between the calling for nominations, the receipt of nominations, and the acceptances of bids, are utilized as the period for information to be supplied to the State, an offer to be made by the Secretary of the Interior to the State, and mutually acceptable terms to be negotiated.

If there is no special lease under this subsection, or if a special lease does not contain a term specifically dividing proceeds from a lease, all Federal revenues from the Federal lease are to be placed in a separate account until the Secretary of the Interior and the Governor of the coastal State determine the proper rate of payments to be deposited in their respective treasuries, based on geological or other information. If, after a reasonable period of time after production has commenced, the Secretary and the Governor are not able to make such a determination, under section 23(b), the controversy as to the rights to natural resources would be decided by the appropriate district court. Section 206.Outer Continental Shelf Oil and Gas Exploration

Section 206 amends section 11 of the OCS Act, providing for the procedures for exploration of areas on the Outer Continental Shelf.

Under the original Outer Continental Shelf Lands Act of 1953, any agency of the United States and any person authorized by the Secretary could conduct geological and geophysical explorations. The committee believes, as indicated by most witnesses and the Department of the Interior, that this provision grants clear authority to allow any type of exploration before a lease sale including private exploration, or public exploration, directly or by contract. The committee decided not to alter this broad grant of authority nor to indicate a preference for one exploration strategy over another, except for requiring applicants to be sought for an on-structure stratigraphic test, described in subsection (g). Therefore, it readopted, in subsection (a) (1), substantially the original language of the 1953 Act by providing that the Secretary or any other agency or any person whom the Secretary authorizes by permit or through regulation may conduct geological and geophysical exploration in the Outer Continental Shelf, provided such explorations do not interfere with operations in any leased area, and are not unduly harmful to the marine environment.

The committee recognized that the Secretary of the Interior has not yet authorized Government exploration on OCS lands, either by his own employees or by contracted service personnel. However, it is believed, based on the testimony of the Interior Department, that this Section would allow the present Secretary, or any future Secretary, to conduct or authorize such exploration activities as he deemed proper.

Section 11, adds a requirement for all holders of leases issued or maintained under this Act to submit an exploration plan to the Secretary for approval prior to exploring a leased area. Such plan may apply to more than one lease held by a lessee in a region or to more than one lessee, where there is a unitization, pooling or drilling agreement. Any lessee conducting activities on their own leased area must do so in accordance with an approved exploration plan and is exempted from the permit or regulatory authorization procedures and limitations of subsection (a)(1). However, the Secretary is given the authority to require a lessee, hy regulation, to obtain a permit before drilling any well, despite having approved the exploration plan.

Subsection (c) describes the contents of an exploration plan and the procedures for approval or modification of that plan. An exploration plan is to include: (1) A schedule of anticipated activities; (2) a description of equipment to be used; (3) the general location of each well to be drilled; and (4) other information deemed pertinent by the Secretary. In addition, the Secretary can, by regulation, require a lessee to submit a statement as to expected on-shore impact of exploration activities and his development and production intentions. Such statement shall be for planning purposes only, and shall not be binding on any party.

After submission of the plan, the Secretary has 30 days to act upon it. If he finds it consistent with the law, regulations and the lease, he may approve it. If he finds modifications are necessary to achieve such consistency, he is to require such modification. If he believes the plan, even if modified, would not insure safe operations he can delay action upon the plan and suspend activities, but only pursuant to and under the circumstances permitted by regulations provided for such environmental suspensions under amended section 5(a)(1) of the OCS Act. Of course, such suspension may be temporary or, where appropriate, lead to cancellation pursuant to the procedures established by section 5(a)(2) of the 1977 OCS Act.

After submission and approval of his plan, the lessee may request revisions, which would then be subject to the same approval procedures as his original plan.

The requirement of approval of a plan prior to any exploration applies to all leases issued after the date of enactment of the 1977 amend

ments and all leases issued prior to the date of enactment where drilling permits were not issued prior to such date. For such leases, the lessee has 90 days after enactment to submit an exploration plan for approval. The committee is aware that the Interior Department has already promulgated regulations requiring the preparation and submission of exploration plans, and submission of certain planning information to States (30 CFR 250.34 (a)). These plans, if approved by the Department of the Interior, can easily be revised to bring them into conformity with the requirements of the 1977 amendments.

The requirement of approval of exploration plan, as detailed in this section, does not apply to lessees who have acquired a drilling permit prior to enactment of the 1977 amendments. As noted earlier, many lessees have submitted exploration plans in accordance with regulatory requirements. These lessees shall be considered in compliance with the requirements of this revised section. If no exploration plan is in existence, a lessee with a drilling permit will still be considered in compliance with this Act but may be required to describe his activities in a plan and submit a planning statement.

The Secretary retains his right on all leases to require revisions of a plan and to establish additional requirements over time. However, as detailed in the analysis of the Secretary's general regulatory responsibility under section 5(a), any retrospective regulation must be reasonable and any new requirements that would cause undue delay must be justified in a finding.

Pre-lease drilling Subsections (g) and (h) describe procedures for authorizing prelease exploration by permit. Subsection (g) specifically authorizes the Secretary to permit such pre-lease drilling in areas believed to contain significant hydrocarbon accumulations. Whether an area contains such accumulations may be determined by the Secretary or by an applicant for a permit. Such drilling would be done only on the basis of voluntary participation by industry and specifically at no cost to the Government.

The pre-lease exploratory drilling program contemplated by this subsection is patterned after the existing Continental Off-shore Štratigraphic Test (“COST”) program. Under that program, the Interior Department has granted permits to consortiums of oil companies to drill deep stratigraphic test wells in frontier areas prior to leasing. Participating companies and the Interior Department have the exclusive right to information obtained from the testing.

Permits have been granted for COST drilling in the Gulf of Mexico, Southern California and Gulf of Alaska, as well as in the Baltimore Canyon Trough Georges Banks and South Atlantic, regions of the Atlantic OCS.

The program has met with widespread industry support and acceptance, as evidenced by the fact that 31 oil companies shared the estimated $9 million cost of drilling the Baltimore Canyon trough test well.

However, until recently, the Interior Department has followed a policy of allowing COST drilling only in locations where there is the lowest possibility of detecting the presence of oil and gas (off

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