Bud's Offshore Energy (BOE)

• The 199 oil and gas leases that were wrongfully acquired for carbon disposal purposes remain idle with the government collecting rental payments at the rate of $10/acre/yr ($7 for Sale 257 leases). Collectively, this amounts to approximately $10 million/yr.
• Presumably, the lessees cannot claim CCS tax credits for their bonus and rental payments.
• The primary term for these leases is only 5 years, and the clock is ticking. The 94 oil and gas leases acquired by Exxon at Sale 257 for carbon disposal purposes are approaching the end of their second year. They would be almost a year older if litigation hadn’t delayed the issuance of Sale 257 leases (break for Exxon?).
• No exploration plans have been filed for any of these leases. Presumably Exxon and Repsol do not intend to drill any wells unless the leases are converted to authorize carbon disposal.
• The “Infrastructure Bill,” signed 2 days before Sale 257, required the Secretary of the Interior to promulgate regulations not later than one year after the date of enactment (11/15/2021). That deadline has long passed.
• The delay in the regulations is understandable given the complex lease management, operational, and environmental issues.
• Like the practices and operations they are intended to enable, the regulations are certain to be divisive. Neither the offshore industry nor the environmental community are of one mind on these issues, particularly with regard to the acquisition of oil and gas leases for carbon disposal purposes.
• Energy Intelligence suggests that final carbon disposal regulations will be promulgated this year. This is highly unlikely, given that a proposed rule must first be published for public comment.
• Interior could seek to demonstrate “good cause” for a direct final or interim final rule. However, such an attempt at corner-cutting is unlikely, especially given the controversy associated with carbon disposal.
• Publication of a proposed rule prior to the election is unlikely – too controversial.
• Presumably, the regulations will establish a competitive process for the conversion of any oil and gas leases.
• The leases that were wrongfully acquired at Sales 257, 259, and 261 should not be extended for any period of time, even if their expiration date approaches before a competitive process is established.

Closing comment: “Sequestration” is a euphemism that is being incorrectly applied to soften the reality of disposing carbon beneath the Gulf of Mexico. Sequestration implies storage for later use and that is clearly not the intent. Because carbon disposal is arguably dumping, a special exemption from the Marine Protection, Research, and Sanctuaries (Ocean Dumping) Act of 1972 had to be added to the Infrastructure Bill.

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