updated February 1996

1
From Lease to Release on the Outer Continental
Shelf -- an Overview
J. Keith Couvillion ChevronTexaco Corporation
March 6, 2003
2
From Lease to Release on the OCS
Outline

• History of the Federal Offshore Program
• Introduction to the OCS
• Current View of the OCS
• Lease Sale Process
• Questions and Answers

3
Terms
OCS - Outer Continental Shelf MMS - Minerals
Management Service DOI - Department of
Interior GOM - Gulf of Mexico EEZ - Exclusive
Economic Zone EIS - Environmental Impact Statement
4
History of Offshore

• First Offshore Well Drilled off the Coast of
  Summerland, California (1896)
• Numerous Wells Drilled off of Piers
• 300 to 500 feet long (Longest Pier 1230)
• (400 wells drilled this way)
• 1938 - Discovery of Creole Field
• (1-1/2 miles from Louisiana coast)
• Drilled from 100 by 300 Platform
  Secured to
• a foundation of timber piles in 14 of water.
• 1947 - Well Drilled out of sight of Land
• (12 miles from South Terrebonne Parish,
  LA)

5
Summerland Oil Field
6
Offshore History Lesson

• 1945 Presidential Proclamation
• The Submerged Lands Act (May 22, 1953)
• The Outer Continental Shelf Lands Act (August
  7, 1953)
• 1958 Geneva Convention on The Continental Shelf
• 1982 United Nations Law of the Sea Convention
• 1983 Presidential Proclamation (EEZ)

7
The U. S. EEZ
EXCLUSIVE ECONOMIC ZONE
8
Submersible Rig
9
What Is The OCS?
Land
Shelf Edge
Ocean
600 ft.
Continental Shelf
4,500 ft. - 10,500 ft.
Continental Slope
13,000 ft.
Continental Rise
Seabed
CONTINENTAL MARGIN
10
Gulf of Mexico
11
Offshore Areas

• State vs. Federal Jurisdiction
• Territorial Seas
• OCS Regions

12
State vs. Federal Boundaries
13
OCS Planning Areas
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Atlantic Region
15
Atlantic Region
16
Pacific Region
17
Pacific Region
18
Alaska Region
19
Alaska Region
20
Gulf of Mexico Region
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Gulf of Mexico Region
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Gulf of Mexico
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Access Restrictions
24
Jackup Rig
25
OCS Lease Sales

• OCS Land Act (OCSLA)
• 1978 Amendments to OCSLA
• 5 - Year Leasing Program
• 2002 - 2007 Lease Sales
• Planning Area Sales

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OCS Planning Areas
27
GOM - OCS Planning Areas
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OCS Lease Sale Procedure
Call for Information
Proposed Notice of Sale
Area Identification
Governors Comments
Draft EIS
Final Notice of Sale
Public Hearing
Sale
Final EIS
Issuance of Leases
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5-Year OCS Oil Gas Leasing Schedule - Alaska
30
5-Year OCS Oil Gas Leasing Schedule Gulf of
Mexico
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Federal Register Notice
32
OCS Lease Sales
BIDDING QUALIFICATIONS

• Qualification Paperwork
• Equal Opportunity Forms
• Debarment Certification

33
OCS Lease Sales
BID SUBMITTAL

• Appropriate Paperwork on File with MMS
• Cash Bonus Variable
• All Other Commercial Terms Fixed
• One Tract per Bid
• Due before 1000 a.m. the day before the Sale
• Signed Bid Form Submitted in Sealed Envelope

34
Lease Financial Terms

• Initial Period
• 5 years for blocks in water depths less than
  400 meters
• 8 years for blocks in water depths of 400 to
  799 meters
• 10 years for blocks in water depths of 800
  meters or deeper
• Minimum Bonus Bid Amount
• 25.00 per acre or fraction thereof for water
  depths less than 800 meters
• 37.50 per acre or fraction thereof for water
  depths 800 meters or deeper
• Rental/Minimum Royalty Rates
• 5.00 per acre or fraction thereof for water
  depths less than 200 meters
• 7.50 per acre or fraction thereof for water
  depths 200 meters or deeper

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Lease Financial Terms

• Royalty Rates
• 16-2/3 royalty rate in water depths less than
  400 meters
• 12-1/2 royalty rate in water depths 400 meters
  or deeper
• Royalty Suspension
• 0-199 meters 20 BCF (New gas reservoirs at or
  below 15,000 feet subsea)
• 400 to 799 meters 5 Million BOE per Lease
• 800 to 1599 meters 9 Million BOE per Lease
• 1600 meters and deeper 12 Million BOE per Lease

36
Keathley Canyon Area
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Bid Form
38
Bid Envelope
Texaco Exploration and Production Inc. - GOM
Company No. 771 Green Canyon (NG 15-03)
Block 491 SEALED BID FOR OIL AND GAS
LEASE SALE 182, NOT TO BE OPENED UNTIL 9 A.M.,
WEDNESDAY, MARCH 20, 2002.
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OCS Lease Sales
SALE DAY

• Bids Opened and Read Aloud
• High Bid Receipts Picked Up
• 1/5th Bonus due by EFT by 200 p.m. day after
  Sale

40
OCS Lease Sale
LEASE AWARDING

• Phases I II
• 4/5th Bonus due by EFT on or before
• 11th business day after notice
• Sign Lease Form (Triplicate)
• Submit Executed Lease to MMS
• Executed Lease Issued

41
OCS Lease
42
Semi-Submersible Drilling Vessel
43
Real Property Rights

• Record Title
• Operating Rights
• Revenue Interest
• Overriding Royalty
• Production Payment
• Net Profits Interest

44
Key Offshore Regulations

• Oil and Gas Leases
• Code of Federal Regulations
• 30 CFR 250
• 30 CFR 256
• Notice of Lessees and Operators
• Federal Register Notices
• New Laws (e.g. Oil Pollution Act of 1990, etc.)
• Proposed Rulemaking

45
Key Offshore Regulations

• Designation of Operator
• Exploration Plan (EP)
• Plans of Development (POD)
• Development Operations Coordination Document
  (DOCD)
• Application for Permit to Drill (APD)
• Sundry Notices and Reports on Wells
• Minimum Royalty
• Suspension of Production (SOP)
• Suspension of Operations (SOO)
• Oil Spill Financial Responsibility (OSFR)
• Bonding

46
Government Agencies, Laws and Regulations
OTHER LAWS INVOLVED IN OCS NATIONAL
ENVIRONMENTAL POLICY ACT ENDANGERED SPECIES ACT
OF 1973 COASTAL ZONE MANAGEMENT ACT FEDERAL WATER
POLLUTION CONTROL ACT CLEAN AIR ACT MARINE MAMMAL
PROTECTION ACT OF 1972 PORTS AND WATERWAYS SAFETY
ACT NATIONAL HISTORIC PRESERVATION ACT NATURAL
GAS POLICY ACT MARINE POLLUTION RESEARCH AND
CONTROL ACT OF 1987 OCCUPATIONAL SAFETY AND
HEALTH ACT OIL POLLUTION ACT OF 1990 NATIONAL
FISHING ENHANCEMENT ACT OF 1984 RIVERS AND
HARBORS OF 1899 COASTAL BARRIER RESOURCES ACT OF
1982 NATIONAL OCEAN POLLUTION ACT OF 1978
OTHER AGENCIES INVOLVED IN OCS U.S. COAST
GUARD DEPARTMENT OF DEFENSE CORPS OF
ENGINEERS U.S. AIR FORCE DEPARTMENT OF
TRANSPORTATION COMMERCE DEPARTMENT U.S. NAVY U.S.
FISH AND WILDLIFE SERVICE NATIONAL PARK
SERVICE ENVIRONMENTAL PROTECTION AGENCY STATE
DEPARTMENT DEPARTMENT OF ENERGY TREASURY
DEPARTMENT FEDERAL ENERGY REGULATORY
COMMISSION U.S. GEOLOGICAL SURVEY BUREAU OF
MINES MARINE MAMMAL COMMISSION

OTHER INVOLVED IN
OCS PRESIDENT FISHERMEN CONGRESS SIERRA
CLUB GOVERNORS OF COASTAL STATES FRIENDS OF THE
EARTH
47
Drillship
48
Lease -- End of Life

• Expire (End of Primary Term)
• Surrender (Anytime during Life of Lease)
• Terminate (Automatic)

49
Final Lease Obligations

• One Year to
• - Plug all Wells
• - Abandon and Remove all Platforms
• - Clear the Seafloor
• Pay all amount due (Royalties, Rentals, Fines
  Penalties)
• Bonds (General and Supplemental)

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Offshore Platform
51
Compliant Tower
52
Tension Leg Platform
53
Mini - Tension Leg Platform
54
Subsea Production System
55
Subsea Production System
56
Multi Field Development
57
Spar Design
58
Spar
59
Floating Production, Storage and Offloading System
60
Helpful Websites

• Minerals Management Service
• www.mms.gov
• Federal Laws
• www.thecre.com/fedlaw/default.html
• Code of Federal Regulations
• www.access.gpo.gov/ecfr
• Federal Register
• www.access.gpo.gov/su_docs/aces/aces140.html

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QUESTIONS AND ANSWERS