Next Steps to Reform the Regulations Governing Offshore Oil and Gas Planning and Leasing

• Publication year: 2016

§ 33 Alaska L. Rev. 1. NEXT STEPS TO REFORM THE REGULATIONS GOVERNING OFFSHORE OIL AND GAS PLANNING AND LEASING

Alaska Law Review
Volume 33, No. 1, June 2016
Cited: 33 Alaska L. Rev. 1

NEXT STEPS TO REFORM THE REGULATIONS GOVERNING OFFSHORE OIL AND GAS PLANNING AND LEASING

Andrew Hartsig, Michael Levine, Jayni Foley Hein, and Jason Schwartz ^[*], ^[**], ^[***], ^[****]

ABSTRACT

The Department of the Interior manages offshore oil and gas activities in federal waters. While the agency has proposed and/or enacted important improvements to the rules that govern some of those activities, it has not modernized the regulations that govern offshore oil and gas planning, lease sales, or the review and permitting of exploratory drilling. These phases of the process are overseen by the Bureau of Ocean Energy Management (BOEM), and, as was shown in our earlier publication on this topic, are ineffective and in need of modernization. In this Article, we argue that fundamental reform is necessary and highlight a series of key themes and topics that must be addressed to improve the regulatory process and promote better, more consistent management outcomes. While the Article draws on examples from frontier areas-in particular the U.S. Arctic Ocean-the recommended changes would apply to and benefit all areas of the OCS.

INTRODUCTION

In this Article, we build on What About BOEM? The Need to Reform the Regulations Governing Offshore Oil and Gas Planning and Leasing, ^[1] which made the case that the regulations governing offshore oil and gas planning and leasing activities on the Outer Continental Shelf (OCS) are outdated, ineffective, and in need of revision. The previous Article showed that the nature of the offshore oil and gas industry is changing and that regulations applicable to Bureau of Ocean Energy Management (BOEM) obligations have not kept pace with those changes. ^[2]

Here, we take that call for reform one step further by suggesting potential improvements to the regulations that govern three of BOEM's substantive obligations: (1) development of five-year OCS oil and gas leasing programs; (2) sale of OCS leases to oil and gas companies; and (3) review of OCS exploration drilling plans. At these stages of the process, BOEM determines where and under what circumstances oil and gas companies may be allowed to explore for-and potentially develop and produce-hydrocarbons on the OCS. As in our earlier Article, most of the justifications presented here focus on frontier areas and, in particular, potential oil and gas activities in the U.S. Arctic Ocean. The changes we recommend, however, would apply to and benefit all areas of the OCS.

In crafting these recommendations, we highlight recent progress and identify the benefits of codifying changes through regulations. We do not, however, recommend specific language or address individual regulatory provisions that should be revisited. Recognizing that fundamental changes need to be made to the regulations, we focus on key themes that would improve the regulatory process and foster better management outcomes.

Further, recent decisions to stop certain offshore activities in frontier areas-like Shell's decision to halt Arctic Ocean exploration "for the foreseeable future" ^[3] -create an opportunity to effectuate change. The Department of the Interior (DOI) can use this interval to better prepare for future leasing decisions and improve the overall management of the federal program. Interest in Arctic Ocean leasing and exploration, for example, has been cyclical. ^[4] Proactive steps to address regulatory deficiencies should lead to better decisions, if and when interest reemerges. Meanwhile, there is likely to be continued demand for offshore leases in the Gulf of Mexico, and implementing these recommendations will help BOEM make smarter, more transparent, and more consistent decisions throughout its management of the OCS. The recent announcement by the Secretary of the Interior that DOI would pause all new coal leasing and comprehensively evaluate the federal coal program ^[5] and the mounting public concern about the climate impacts from fossil fuel development reflect a recognition that the type of review we advocate is both possible and timely.

This Article suggests a pragmatic path toward meaningful reform of BOEM's planning, leasing, and exploration plan review processes. Part I provides necessary background and context for our argument, including the importance of effective regulations, changes that have already been made, and the need for further reform. In Part II, we describe our suggested regulatory reforms. We recommend both overarching changes that are broadly applicable to new regulations as well as specific reforms targeting five-year planning, lease sales, and permitting and authorization of exploration activities on the OCS. These recommendations call for greater transparency, more attention to environmental and social risks, and the use of modern economic tools, among other improvements. We conclude with recommendations for a path forward for DOI.

I. BACKGROUND AND CONTEXT

A. Effective Regulations Are Important for Effective Agency Processes

The primary function of agency regulations is to "implement, interpret, or prescribe law or policy." ^[6] Lawmakers frequently craft statutes that are "so broadly phrased that agencies have enormous leeway to fill in the gaps-both procedural and substantive-of the legislation so long as they keep within the terms of the governing statutes." ^[7] In other words, Congress frequently gives administrative agencies extensive discretion to set policies and procedures. ^[8] An agency's power "to administer a congressionally created and funded program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress." ^[9] When confronted with such a gap, federal agencies are empowered to "elucidate a specific provision of the statute by regulation." ^[10]

Regulations must be consistent with the underlying statutory framework and Congress's intentions. ^[11] Truly effective regulations, however, go beyond that basic requirement. They are "consistent, sensible, and understandable" ^[12] and "promote predictability and reduce uncertainty." ^[13] Agencies must strive "to promote such coordination, simplification, and harmonization" among multiple regulatory entities. ^[14] Moreover, existing regulations must be reviewed periodically to determine if they are "outmoded, ineffective, insufficient, or excessively burdensome." ^[15] As President Obama stated, federal agencies have a "mission to root out regulations that conflict, that are not worth the cost, or that are just plain dumb." ^[16]

Regulations that do not effectively fill the gaps left by Congress create the possibility of inconsistent agency decisions and increase the risk of litigation. Effective rules, on the other hand, streamline agency analyses, ensure good practices are carried forward, and help keep pace with innovation.

B. The Need to Reform Existing Rules

The Outer Continental Shelf Lands Act (OCSLA) ^[17] is the primary law governing management of oil and gas activities in federal waters. The statute is intended to enable "expeditious and orderly development [of OCS resources], subject to environmental safeguards, in a manner which is consistent with the maintenance of competition and other national needs." ^[18] OCSLA creates a four-stage process for management of offshore oil and gas activities: (1) developing a Five-Year Leasing Program, (2) holding the lease sales scheduled in that Program, (3) evaluating and permitting exploration activities, and (4) evaluating and permitting development and production activities. ^[19] At each of these stages, the statute provides some direction, but its mandates are broadly stated and afford the agency substantial discretion. ^[20]

In many respects, OCSLA itself should be updated to reflect the changing industry and lessons learned in the wake of the Deepwater Horizon tragedy and Shell's failed 2012 drilling season. ^[21] Congress, however, has taken no action to amend the statute and is unlikely to do so in the current political environment.

In contrast, DOI has made progress in advancing reforms using the authority and discretion afforded by the statute. Most notably, DOI disbanded the troubled Mineral Management Service (MMS) and replaced it with three independent successor agencies: BOEM, the Bureau of Safety and Environmental Enforcement (BSEE), and the Office of Natural Resources Revenue (ONRR). ^[22] This change was intended to improve DOI's performance with respect to ensuring: (1) balanced and responsible development of energy resources on the OCS; (2) safe and environmentally responsible exploration and production and enforcement of applicable regulations; and (3) fair return to the taxpayer from offshore royalty and revenue collection and disbursement activities. ^[23]

DOI has also made progress in modernizing some of its regulations. By and large, these changes have applied to the revenue collection functions of ONRR and to the safety and inspection functions of BSEE. ^[24]

This progress has continued since publication of our earlier Article. In addition to the reforms described there, BOEM has increased the liability limits for offshore facilities to keep pace with inflation. ^[25] This update, which went into effect in January 2015, was the first time the...