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Offshore Oil and Gas Development: Legal Framework

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Publication Date: January 2009

Publisher(s): Library of Congress. Congressional Research Service

Series: RL33404

Topic: Energy (Petroleum industry)
Environment (Ocean and ocean resources)

Abstract:

The development of offshore oil, gas, and other mineral resources in the United States is impacted by a number of interrelated legal regimes, including international, federal, and state laws. International law provides a framework for establishing national ownership or control of offshore areas, and domestic federal law mirrors and supplements these standards.

Governance of offshore minerals and regulation of development activities are bifurcated between state and federal law. Generally, states are primary in the three geographical mile area extending from their coasts. The federal government and its comprehensive regulatory regime governs, on the other hand, those minerals located in federal waters, which extend from the states' offshore boundaries out to at least 200 nautical miles from the shore. The basis for most federal regulation is the Outer Continental Shelf Lands Act (OCSLA), which provides a system for offshore oil and gas development planning, leasing, exploration, and ultimate development. Regulations run the gamut from health, safety, and environmental standards to requirements for production based royalties and, when appropriate, royalty relief and other development incentives.

Several contentious legal issues remain the subject of national debate and legislative proposals. Bills that would open more areas to oil and gas leasing compete with legislation that would permanently ban drilling in areas that are currently under leasing moratoria. The role of the coastal states in deciding whether to lease in areas adjacent to their shores is also an issue that has received recent attention, with some legislative proposals granting significant decisional authority to state governments while others would direct the Secretary of the Interior to lease specific areas, limiting the state role to what is provided under existing statutes.

In addition to these legislative efforts, there has also been significant litigation related to offshore oil and gas development. Cases handed down over a number of years have clarified the extent of the Secretary's discretion in deciding how leasing and development are to be conducted. Also, pending litigation brought by the KerrMcGee Corporation is challenging the legal authority of the Secretary to suspend royalty relief for certain deep water leases. The outcome of this litigation could result in a substantial loss of royalty income for the United States with estimates ranging from $18 to $28 billion over the next five years.