Overview:
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Located within the US Department of the Interior, the Minerals Management Service (MMS) manages the natural gas, oil and other mineral resources on the US outer continental shelf (OCS). MMS is responsible for collecting revenues generated from government leases of OCS lands as well as onshore mineral leases on federal and Native American lands to private oil and gas companies. These lease revenues represent some of the most important non-tax revenue the federal government collects. However, MMS has received bipartisan criticism for not fully collecting royalty payments from oil and gas companies and for extensive “ethical lapses.” Following the Deepwater Horizon oil spill disaster, the MMS received such bad press that the Obama administration named it the Bureau of Ocean Energy Management, Regulation and Enforcement.
History:
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By the turn of the 20th century, oil drilling was mostly confined to the interior of the United States or along beaches in some regions as America turned increasingly to oil as its primary energy source. Over time several innovations began to allow oil companies to expand exploration opportunities, namely steel-cable tool drilling, the use of diamond drills, new valves, controls and drill control instrumentation, as well as the development of modern seismology. By the 1940s oil companies had begun to establish the first offshore oil wells in the Gulf of Mexico, with 11 fields and 44 exploratory wells in operation by 1949.
The issue of oil and gas development in the gulf led to a dispute between the state of Texas and the federal government. Known as the tidelands controversy, the dispute involved whether the state or the US government held title to 2.5 million acres of submerged land in the Gulf of Mexico between low tide and the state’s gulfward boundary, almost 10 miles from shore. Texas had first acquired this land when it entered the Union in 1845, with ownership recognized by federal officials for more than 100 years.
To help settle such disputes, the federal government passed two key pieces of legislation in 1953. One was the US Submerged Lands Act, which established the federal government’s title and ownership of submerged lands at three miles from a state’s coastline. The other legislation was the Outer Continental Shelf Lands Act (OCSLA) which defined the Outer Continental Shelf (OCS) as all submerged lands lying seaward of state coastal waters that are under US jurisdiction.
Under OCSLA, the Secretary of the Interior was given responsibility for the administration of mineral exploration and development of the OCS. The act empowered the secretary to grant leases to the “highest qualified responsible bidder” on the basis of sealed competitive bids and to formulate regulations to carry out the act’s provisions. Later, changes to the act provided guidelines for implementing an OCS oil and gas exploration and development program.
Over the next two decades, offshore oil and gas development increased substantially off the gulf and Pacific coasts of the US. Then came a landmark event in 1969. A Union Oil Co. platform stationed six miles off the coast of Santa Barbara, California, suffered a blowout, releasing oil and gas from deep beneath the earth. It took oil workers 11 days to cap the leaks. During that time 200,000 gallons of crude oil bubbled to the surface, creating an 800-square mile slick that tarred 35 miles of California coastline.
The ecological damage was startling. Dead seals and dolphins washed up on shore, and thousands of seabirds died as well. The Santa Barbara oil spill outraged people across the country, helped launch the modern environmental movement and curtailed further development of coastal waters by oil companies. The next four decades would see repeated efforts by petroleum giants and their political allies to push unsuccessfully for new wells and platforms off California’s coast.
Congress passed several key environmental bills in the wake up the 1969 incident. They included the National Environmental Policy Act, which mandated a detailed environmental review before any major or controversial federal action, the Clean Air Act, which regulated the emission of air pollutants from industrial activities, the Coastal Zone Management Act, which required state review of federal action that would affect land and water use of the coastal zone, and the Clean Water Act, which regulated the discharge of pollutants into surface waters.
In 1982 Congress passed the Federal Oil & Gas Royalty Management Act, which mandated the protection of the environment and conservation of federal lands in the course of building oil and gas facilities. The Secretary of the Interior ordered the creation of the Minerals Management Service (MMS) to manage federal government leases of submerged OCS lands to oil and gas companies and to supervise their offshore operations. The creation of MMS came at a time when the Reagan administration advocated for more oil drilling off American coastlines.
In 2005, the administration of George W. Bush—a strong proponent of the oil industry—pushed through a key energy bill that, among other things, called for increased production in domestic oil and natural gas supplies. To help carry out this objective, MMS was required to conduct a comprehensive inventory of oil and gas resources on the OCS.
The bureau was also mandated to implement a new coastal impact assistance program providing $250 million in OCS lease revenues to coastal states from 2007 through 2010. Alaska, Alabama, California, Louisiana, Mississippi and Texas were made eligible for this new assistance. These states will also receive monies generated from new alternative energy sources developed in the OCS, including wind, wave and solar energy.
What it Does:
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Located within the US Department of the Interior, the Minerals Management Service (MMS) manages the natural gas, oil and other mineral resources on the US outer continental shelf (OCS). These resources account for 27% of the nation’s domestic oil production and 15% of its natural gas production. Based on current projections of expected growth in deepwater development, OCS production could account for more than 40% of oil and 23% of natural gas production by 2010.
MMS is responsible for collecting revenues generated from government leases of OCS lands, as well as onshore mineral leases on federal and Native American lands, to private oil and gas companies. These leases produce an average of $8 billion a year to the federal treasury, according to MMS. The bureau estimates there are 86 billion barrels of oil and 420 trillion cubic feet of gas in undiscovered OCS fields. These volumes represent about 60% of the oil and 40% of the natural gas resources among all undeveloped areas in the United States.
Headquartered in Washington, DC, MMS carries out its work through two major programs: Offshore Minerals Management and Minerals Revenue Management.
Offshore Minerals Management: This division of MMS oversees oil and gas resources found off of Alaska, the Atlantic Ocean, Gulf of Mexico and the Pacific Ocean. It generates reports on OCS oil and gas production, worker safety and environmental incidents and safety and oil spill research. The Offshore Minerals Management division also serves as the liaison with foreign governments over matters involving natural resource exploration and development in the OCS. Furthermore, the division operates programs on Coastal Impact Assistance and environmental assessment, compliance, monitoring and research. Information is made available through the MMS web site on gas hydrates, OCS leases, marine minerals, regulations, alternative energy, royalty relief and partnerships.
Minerals Revenue Management (MRM): This division is responsible for managing all revenues brought in from both federal offshore and onshore mineral leases—a key source of non-tax revenue for the federal government. Operationally based at the Denver Federal Center in Colorado, the Minerals Revenue Management division has field offices in Texas, Oklahoma and New Mexico. It provides information on lease payments, including statistics on royalty payments by companies.
In addition to managing leases, MRM also participates in the sale of oil and gas through energy markets. Under federal oil and gas leasing laws, the government has the choice of either being paid in cash for the leases it issues to companies or receiving its royalty payments in kind—meaning, in the form of oil or gas production. In the case of the latter, MRM sells the oil or gas it receives on the open market. This MRM activity is carried out through the Royalty in Kind (RIK) Program. Currently, the RIK Program sells approximately 800 million cubic feet of natural gas and over 150,000 barrels of crude oil per day. Revenues from sales and other dispositions of RIK oil and gas in FY 2006 were approximately $3.75 billion.
MRM’s section of the MMS web site makes available a host of
that detail the laws and regulations pertaining to OCS leases as well as relevant
and
. Also on the site is information about the
Indian Compliance and Asset Management
program. Because MMR oversees mineral leases on Native American lands, this division operates the Indian Compliance and Asset Management program to address mineral issues with the tribal communities, company lease holders and other federal agencies.
Where Does the Money Go:
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The nation’s largest petroleum and natural gas companies enjoy considerable economic benefits from MMS operations and decisions. Corporations like Shell, BP, Chevron, Kerr-McGee, Exxon Mobil and Apache hold oil and/or natural gas leases managed by MMS. In total, there are 126 companies listed as natural gas lease-holders—many of whom are also found among the 129 companies listed as oil lease-holders.
Other stakeholders that benefit from offshore oil and gas leases are companies that manufacture oil rigs and drills plus other equipment used by lease holders. Examples of these are oil and gas infrastructure providers are Halliburton (formerly run by Vice President Dick Cheney), Bechtel and Baker Hughes.
Controversies:
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Widespread Financial Scandal
Three separate reports prepared by the Department of Interior’s inspector general revealed “a culture of ethical failure” that included freewheeling corruption, free paintball outings, the use of illegal drugs and MMS officials getting in bed with oil and gas representatives…literally.
Salazar Kicks Off Review of Troubled Interior Program (by Ed O’Keefe, Washington Post)
Wide-Ranging Ethics Scandal Emerges at Interior Dept. (by Charlie Savage, New York Times)
Failure to Collect Royalties
In 2006-2007 MMS, under the leadership of Director Johnnie Burton, came under intense criticism by both Republicans and Democrats in Congress, the Government Accountability Office and the Department of the Interior’s Inspector General (IG) over the bureau’s failure to collect billions of dollars in royalty payments from oil and gas companies.
At issue was a leasing mistake created by the Clinton administration in the 1990s that MMS under President George W. Bush was slow to acknowledge and take action to correct.
Critics estimated the error in royalty calculations would end up costing the American public about $10 billion in lost revenue over five years, but MMS officials insisted there was little the government could do to fix the problem. Republicans on the House Government Reform Committee accused the bureau of stonewalling their investigation and going too far in making concessions to oil companies.
Also, the Interior Department’s IG declared that “short of crime, anything goes at the highest levels of the Department of the Interior” as part of its examination of the royalty collection failure.
Burton wound up resigning in 2007 as a result of the controversy. Congressman Darrell Issa (R-CA), the ranking Republican on the Oversight and Government Reform Committee’s domestic policy subcommittee, said in a statement that Burton’s “departure creates an opportunity to change a culture and history of failed management” at MMS. Rep. Jim Costa (D-CA) called the bureau’s royalty collection system a “sorry state.”
But MMS’s new director, Randall B. Luthi, who, like Burton, is a former Wyoming legislator with ties to the oil industry, has resisted calls for dramatic changes at the bureau.
Out of Sight, Under Fire Over Leases (by Edmund L. Andrews, New York Times)
DOI officials dispute calls to drastically change royalties program (Oil & Gas Journal)
Alaskan Oil Lease Threatens Polar Bears
In February 2008 a coalition of Alaska natives and conservation groups filed a lawsuit in federal court challenging a plan by MMS to allow oil drilling in the Chukchi Sea. The area that the bureau wanted to lease to oil companies covers thirty million acres of polar bear, walrus and whale habitat.
Opponents of the plan claimed MMS did not adequately weigh the impacts that oil and gas activities would have on wildlife like polar bears, or on native villages along Alaska’s North Slope. Bureau Director Randall Luthi said, “Energy production can occur while maintaining strong polar bear protections.”
The lease sale was announced in January just days before the Interior Department was expected to list polar bears as “threatened” under the Endangered Species Act. But Interior officials then decided to delay their decision. Conservationists and Alaska natives intimated that the delay may have been intentional to allow the Chukchi Sea lease sale to move forward.
According to internal documents released by Public Employees for Environmental Responsibility, the Interior Department ignored warnings by its own scientists that the agency had failed to fully assess the potential impacts of the lease sale on the Chukchi Sea.
Natives, Conservationists Sue to Block Chukchi Sea Oil Leasing (Environmental News Service)
Minerals Management Service Announces Controversial Chukchi Lease Sale Days before U.S. Fish and Wildlife Service is Due to Decide Fate of U.S. Polar Bears (Wilderness Society)
Alaska Chukchi Sea oil lease offer draws fire
(by Yereth Rosen, Reuters)
- Table of Contents
- Overview
- History
- What it Does
- Where Does the Money Go
- Controversies
- Suggested Reforms
- Comments
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Bureau of Ocean Energy Management (Minerals Management Service)
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