November 1997 Vol. 218 No. 11  Washington

Charles D. Matthews,  Contributing Editor

Washington busy on industry issues

When Congress returned from its traditional summer recess, the members seemed to be more rested and willing to try working together on their legislative agenda. But that didn’t last long, and old political differences and animosities came right back, an d the legislative process bogged down somewhat. At the same time, executive agencies have been busily changing their federal regulations that affect the oil and gas industry, and the results have brought both “good news” and “bad news.”

Some good news: Congress acted on MMS’s proposed rule changes. For many months, MMS has been in the process of changing the regulations applying to three different issues that can and will have serious consequences on the oil and gas industry: Oil Valuation, Royalty in Kind (RIK) and expanding geological and geophysical (G&G) permitting rules.

All three issues were brought up during congressional consideration of the Interior Department’s Appropriations Bill for FY 1998. The most thorny one turned out to be MMS’s efforts to change the rules covering confidentiality of G&G data so essential to the oil and gas leasing program. The onerous new changes would have given MMS broad authorities including the ability to obtain all the G&G data from all companies that have licensed and re-processed data using their own technology.

Industry’s opposition was quick and strong. Four important industry groups, International Association of Geophysical Contractors (IAGC), Independent Petroleum Association of America (IPAA), Mid-Continent Oil and Gas Association (MGOA) and National Ocean Industries Association (NOIA), communicated their concerns to MMS some months ago. The government’s response, as the Congress was getting close to approving the DOI appropriations for FY ’98, didn’t seem to indicate adequate movement in the right direction, so the industry group turned its attention to Congress for help in getting negotiated rather than mandated rulemaking.

Congress responded positively. While the Senate was debating the bill, Sen. Kay Bailey Hutchison (R-Texas) put the issue in perspective when she opened a colloquy with Sen. John Breaux (D-Louisiana) whom she recognized as one of the principal architects of the OCS Lands Act Amendment s of 1978. She said, “If these concerns (G&G confidentiality) are not addressed, one of our country’s most successful programs, the Outer Continental Shelf Leasing Program, may be jeopardized. Crucial to the success of that program is the ability of the private sector to conduct exploration in the Gulf of Mexico before submitting bids on the tracts offered.”

She pointed out that, in their present form, MMS’s proposed rule changes affecting exploration could potentially place the OCS leasing program in peril. To set the record straight, Sen. Hutchison asked Sen. Breaux whether the proposed regulations were consistent with congressional intent when they passed that law.

What was congressional intent regarding G&G confidentiality? Sen. Breaux repeated his qualifications to answer this question, “Mr. President, as one of the original authors of the Outer Continental Shelf Lands Act, I can advise the Senate that we spent a great deal of time and effort in developing a law that would result in the information, data and interpretation remaining confidential. Any steps that would put confidentiality at risk are contrary to the spirit and intent of what we were trying to accomplish in 1972.”

Breaux, having been brought up in the South Louisiana oil patch, understood well the depth of concern geophysical contractors had at that time, and presently, about the data sharing and confidentiality provisions in the proposed amendments to the OCS Lands Act. He knew any breach of that confidentiality could destroy the market for the data—the contractors’ only asset.

The G&G industry estimates that approving the rules as proposed would require renegotiation of thousands of existing license agreements and, until that is complete, no data can be licensed. This process could take several months, or even years, during which there would be no exploration. With crude oil imports pushing 60%, we can’t afford such an exploration interruption. Sen. Hutchison’s closing words were, “I strongly urge MMS to abandon the current rulemaking proceeding and negotiate immediately with the affected parties to avoid placing the OCS lease program in jeopardy.” And the House and Senate Conferees agreed with her.

Some bad news: U.S. Forest Service (USFS) stops E&P in Montana area. A large 786,000-acre section of the Montana Rocky Mountain Front will be made out of bounds for oil and gas leasing according to the USFS. The area is in the western half of the Lewis & Clark National Forest in the area’s over-thrust belt. The decision was made after national environmental activist groups bombarded USFS with letters opposing its development.

Producers in the area were justifiably upset about the announcement. They had been encouraged by promising seismic data showing the area could hold as much as 11.1 Tcf gas reserves. Bob Nance, president of Nance Petroleum Corp. of Billings, echoed the feelings of all the people in the industry wherever they are when he said, “We’re all very disappointed that the federal government continues to lock up highly prospective areas from domestic industry.” He also noted that USFS gave more consideration to th e minimal impact that might happen to the environment than to the real socio-economic impacts in the area. He also made the point that the action ignores the “multiple use” mandate Congress has put on federal land.

Charles D. Matthews is president of Charles Matthews & Co., consultants and advocates on government relations, Arlington, Virginia.

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