DEEP WATER ROYALTY RELIEF

• Jurisdiction: United States

Federal and Indian Oil and Gas Royalty Valuation and Management
(Feb 2007)
CHAPTER 10B
DEEP WATER ROYALTY RELIEF
L. Poe Leggette
Nancy L. Pell
Devanhshi P. Patel
Attorneys, Fulbright & Jaworski L.L.P.
Washington, D.C.

L. POE LEGGETTE

L. Poe Leggette joined the Washington, D.C. office of Fulbright & Jaworski L.L.P. as a partner in 1998. He now divides his time between the firm's Washington and Denver offices. Poe is co-chairman of the firm's Energy Practice Group and heads their Western Lands and Energy Practice. His practice focuses on judicial and administrative litigation concerning natural resources development on federal and Indian lands. He regularly counsels oil and gas and wind energy companies on obtaining and operating leases on federal and Indian lands, and also defends oil and gas companies accused of violating the False Claims Act.

Prior to private practice, Poe served as Assistant Solicitor for the U.S. Department of the Interior, advising the Bureau of Land Management and the Minerals Management Service on their onshore and offshore energy programs, and MMS's Royalty Management Program on questions of royalty valuation. While with the Department, he authored or co-authored virtually all briefs filed in the federal courts on outer continental shelf issues, obtaining, among other things, two Supreme Court reversals of unfavorable Ninth Circuit decisions.

During and after his government service, Poe has been involved in many significant cases at the trial, appellate, and Supreme Court levels regarding ownership of mineral rights, royalty disputes and compliance with environmental statutes such as the National Environmental Policy Act, the Endangered Species Act, the Coastal Zone Management Act, the National Historic Preservation Act, the Marine Mammal Protection Act, the Federal Land Policy and Management Act, the Outer Continental Shelf Lands Act and the National Forest Management Act. Poe's experience also includes counseling American companies on the legal issues they face doing business in Libya. He has spoken on this subject at conferences in Valleta, Malta, and Tripoli, Libya. Poe has also presented at conferences in Vancouver, St. John's and Halifax on the policy and history of the American offshore energy program for Canadian government and business leaders.

Poe earned a J.D. from the University of Virginia in 1977 and a B.A., magna cum laude, from Tufts University in 1974. He is a member of the Colorado and American Bar Associations, and is a Trustee of RMMLF. Professional Honors include Chambers Global's Best, Energy: Oil & Gas-Regulatory & Litigation (2007); Lawdragon 500 Leading Litigators in America; Lawdragon 500 Leading Lawyers in America; Best Lawyers in America; and Chambers & Partners, USA, Energy & Natural Resources Practice Field in the District of Columbia.

Selected publications include "Toward an Energy Ethic" (rev'd), Rocky Mt. Min. L. Fdn. J., Vol. 42, No. 2 (2005) and Texas State Bar Energy Section Newsletter (2005); co-authored with B. Sumner & R. Scheinkman, "Interior Board of Land Appeals Rejects Petition to Stay Exploratory Well Project and Pipeline Upgrade on Federal Lands in Carbon County, Utah," Legal Update (2004); "Law Governing the U.S. Outer Continental Shelf," Second Annual Pacific Canada and North Coast Offshore Oil & Gas Development Summit (2004); co-authored with B. Sumner & R. Scheinkman, "Federal District Court Judge Rejects Environmentalists' Challenge of Oil and Gas Exploration Project in Utah; Holds BLM's Permit Complied with NEPA, NHPA, and FLPMA," Legal Update, (2004); co-authored with D. McClure & D. Deal, "No Lack of Litigation Over Oil and Gas Royalties," The National L.J. (2004); "Drilling, Wildlife and Wilderness: Recent Developments on Federal Lands," CBA Natural Resources and Energy Law Section (2006); "Policies and Energy: Second Installment on the Energy Policy Act of 2005," National Oil & Gas Royalty Conference (2006); "Smart Companies, Foolish Choices: Recent Litigation Affecting Leasing and Production" (2006); "Natural Gas Market Manipulation: FERC Gas Market Transparency and New Market Manipulation Rules" (2006); "Ethics in Government, Ethics in the Energy Debate: Morons, Oxymorons and Statistics," AAPL 2006 OCS Committee Workshop (2006).

NANCY L. PELL

Nancy Pell is a partner who joined the Washington, D.C. office of Fulbright & Jaworski L.L.P. in 1998. The focus of her practice is oil and gas litigation. Ms. Pell has represented oil and gas companies in disputes against the federal government at the administrative and judicial levels, with particular experience in issues involving the False Claims Act, deep water royalty relief, royalties on natural gas contract settlements, the statute of limitations applicable to royalty actions, the administrative offset of OCS lessee overpayments, and judicial review of crude oil and natural gas valuation regulations. Her practice also involves client counseling, issuing opinion letters, negotiating with government officials on behalf of clients, commenting on proposed rules, and drafting legislative language on behalf of the oil and gas industry.

Ms. Pell received a B.A. in 1987 from the University of Virginia and a J.D. in 1993 from the University of Richmond, where she was a member of the University of Richmond Law Review and the University of Richmond Moot Court Board. She was admitted to practice law in West Virginia in 1993, in Virginia in 1994, and in the District of Columbia in 1996.

Ms. Pell is proficient in English and German.

DEVANSHI P. PATEL

Devanshi Patel joined the Washington, D.C. office of Fulbright & Jaworski L.L.P. as an associate in 2004. Her practice involves judicial and administrative litigation concerning natural resources development on federal and Indian lands. She counsels oil and gas companies on obtaining and operating leases on federal and Indian lands. Ms. Patel also counsels companies on compliance with offshore safety and environmental requirements and on insurance and indemnity issues in offshore operations.

Ms. Patel's general litigation experience is diverse. She recently served as a Special Assistant Attorney General with the District of Columbia Office of the Attorney General (OAG). Ms. Patel argued two jury trials while at the OAG and, she has extensive experience in motions practice.

Ms. Patel is a member of the American Bar Association; Environment, Energy and Resource Committee of the ABA Young Lawyers Division; District of Columbia Bar Association; Camden County Bar Association; and the Supreme Court Historical Society.

She co-authored with L. Poe Leggette and Nancy Pell, "Deductibility of Post-Production Costs on Federal and Offshore Leases," 57th Annual Conference on Oil and Gas Law, February 2006; and co-authored with Nancy Pell, "Recent Court Decisions Affecting Federal Royalty Payors," 18th Annual Colorado Oil and Gas Association Annual Conference, August 2006.

Ms. Patel earned a J.D. from Howard University School of Law in 2004 and a B.A. from George Mason University in 2001. While attending law school, Ms. Patel served as an Articles Editor of the Howard Law Journal. She published an article concerning children's rights in 2004.

Ms. Patel is admitted to practice law in New Jersey and the District of Columbia. She is an active member of the firm's Pro Bono committee and is co-chair of the firm's mentoring partnership with the Macfarland Middle School.

Ms. Patel is profient in English and Gujarati.

Introduction

The offshore oil and gas industry was faced with many challenges in the early 1990s. Between 1982 and 1995, approximately 400,000 to 450,000 jobs in the domestic oil and gas industry had been lost.¹ Domestic production of oil and gas was projected to continue to decline significantly, having already fallen by 1993 to its "lowest level since 1958."² Imports of crude oil were projected to rise to sixty-eight percent by 2005.³ Oil companies were investing large portions of their drilling and development budgets overseas.⁴ In January 1995, the Energy Information Administration released its "Annual Energy Outlook 1995" ("AEO '95") forecasting a continued decline of the production of oil from wells within the United States.⁵ Wells in the lower 48 states were projected to decrease production at a rate of almost one percent per year through 2010.⁶

In response to these developments, and recognizing the potential discovery of vast new oil and gas reservoirs in deep water areas of the Gulf of Mexico, Congress passed the Outer Continental Shelf Deep Water Royalty Relief Act ("DWRRA").⁷ As a result, according to the Minerals Management Service's ("MMS") Regional Director for the Gulf of Mexico, deepwater development "has succeeded probably beyond the most optimistic dreams of most of us and shows no sign of diminishment[.]"⁸ The royalty relief program has resulted in record bidding on

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deep water leases in the Gulf of Mexico, billions of dollars in lease bonuses have been paid to the federal treasury, a thousand new exploratory wells have been drilled, tens of billions of dollars in new economic activity, and a six-fold increase in deep water oil and gas production. In 2004, deepwater production "accounted for over 67 percent of the oil (362 million barrels) and 37 percent of the natural gas (1.5 trillion cubic feet)" produced from the Gulf of Mexico.⁹

With enormous success, now comes enormous controversy. Under the DWRRA, Congress guaranteed that federal lessees could produce over eighty million barrels of oil from a single offshore federal lease without owing the federal government royalties on such production. After spending billions of dollars exploring for oil and gas in the deep waters of the Gulf of Mexico, industry is once again fighting to secure its statutory right to the financial incentives guaranteed by the DWRRA. Meanwhile, Congress has introduced two bills concerning royalty relief for OCS...