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The leasing process for offshore oil, gas, and sulfur

The Bureau of Ocean Energy Management (BOEM) manages leases for offshore energy production. BOEM manages approximately 1.7 billion acres containing about 8,000 active leases. These leases generally account for about 7% of America’s domestic natural gas production and about 24% of America’s domestic oil production.

Leasing is one part of the larger process of planning, leasing, exploring, developing, and decommissioning offshore oil and gas projects.

Before a lease

In accordance with the 1978 Outer Continental Shelf Lands Act (OCSLA) amendment, BOEM develops a schedule of planning areas across the Outer Continental Shelf to offer for oil and gas leasing. This program is known as the Five Year Outer Continental Shelf Leasing Program.

The prospective lease holder must:

  • Submit required documents to BOEM to prove qualified to hold an Outer Continental Shelf lease.
  • Meet pre-lease bonding requirements.

BOEM must:

  • Disqualify companies from lease consideration if they have an unacceptable operating history.

Lease sale

BOEM offers leases through a competitive process that anyone can participate in by submitting a sealed bid. BOEM reviews the bids and identifies the apparent winner (the bidder with the highest offer). The apparent winner will receive the lease if their bid is equal to or greater than BOEM’s fair market value estimate.

The bidder must:

  • Submit sealed bid(s) to BOEM in accordance with the Final Notice of Sale.
  • Submit geophysical data so BOEM can determine fair market value of the lease.
  • Submit a deposit to ONRR equal to one-fifth of the bonus bid amount for each bid
  • Pay the first year’s rent and remaining bonus bid to ONRR within 11 days.

BOEM must:

  • Publish a Proposed Notice of Sale and a Final Notice of Sale prior to holding a lease sale. The Final Notice of Sale describes the timing, size, location, and lease terms and conditions.
  • Open, publicly announce, and record all sealed bids.
  • Submit the lease sale results to the Department of Justice and the Federal Trade Commission for a 30-day evaluation period.
  • Evaluate the bids to ensure fair market value and notify bidders if their bid has been accepted or rejected.

Under a lease

Primary lease terms are usually five years unless BOEM determines the lease is located in unusually deep water or adverse conditions.

The lease holder must:

  • Remain in compliance with all lease terms and conditions.
  • File an exploration and operations plan.
  • Apply for permits to carry out exploration, development, and production in the lease area.
  • Comply with financial assurance demands (e.g. bonds or alternative securities).

BOEM must:

  • Specify the primary term, economic conditions, and lease conditions included in the Final Notice of Sale prior to bidding.
  • Review all permit applications under the lease to ensure activities are conducted in a safe and environmentally sound manner.

End of a lease

The Bureau of Safety and Environmental Enforcement (BSEE) is responsible for safety oversight of ocean energy development and production. When a lease ends, BSEE has a role in ensuring a safe and environmentally friendly decommission process.

At any point, BOEM may subject a lease to judicial review or cancel a lease if circumstances warrant.

The lease holder must:

BSEE must:

  • Decommission a facility to protect the environment and people using the water around it.
  • Order an operator to permanently plug a well if that well poses a hazard to safety or the environment or is not capable of production in paying quantities.