Posts Tagged ‘Senator Manchin’

Washington, DC — Today, U.S. Senator Joe Manchin (D-WV), Chairman of the Senate Energy and Natural Resources Committee, released the following statement on the Department of the Interior’s (DOI) unprecedented delay in releasing a five-year leasing plan. 

“Monday night, the Department of the Interior made it painfully clear – again – that they are putting their radical climate agenda ahead of our nation’s energy security, and they are willing to go to great lengths to do it. The earliest that Interior will release a legally required program for 2023-2028 offshore oil and gas leasing will be the end of this year. That’s 18 months late. This is the first time in our nation’s history that we haven’t had a 5-year leasing program released before the old plan expired. Every other Administration, Democrat and Republican, has managed to follow the law in a timely fashion.

“Let me be clear – this is not optional. The Outer Continental Shelf Lands Act mandates that the Secretary of the Interior “shall prepare” this program to “best meet national energy needs.”

“What is even more terrifying is that on top of this disturbing timeline, Interior refuses to confirm if they intend to actually include any lease sales in the final plan, which is an issue I sounded the alarm about when Secretary Haaland appeared before the Senate Energy and Natural Resource Committee on May 19, 2022. I will remind the Administration that the Inflation Reduction Act also prevents them from issuing any leases for renewables, like offshore wind or onshore solar unless there are first reasonable lease sales for oil and gas that actually result in leases being awarded. And I will hold their feet to the fire on this.” 

Senator Manchin

Plain English; no need for interpretation 😉

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Senator Manchin and the Alaska delegation criticized the DOI decision memo for Sale 258. The memo implied that the highest allowable royalty rate was chosen to minimize bidder interest and limit future production. Unfortunately, the “Inflation Reduction Act,” which mandated these lease sales, was not particularly helpful in creating interest in the less attractive OCS tracts like those in the Cook Inlet and the shallower waters of the Gulf of Mexico.

Sec. 50261 of the IRA raised the minimum allowable royalty rate from 12 1/2% to 16 2/3%, while capping the maximum rate at 18 3/4%. This provision favors deepwater operators, typically majors and large independents, whose royalty rates were capped at 18 3/4%, the same rate as for previous OCS sales.

Conversely, the IRA royalty provisions penalize the smaller companies and gleaners who are critical to sustaining shallow water (shelf) operations, including environmentally favorable nonassociated (gas-well) natural gas production, by raising the minimum royalty rate to 16 2/3%. DOI exacerbated IRA’s impact by electing to charge the highest allowable royalty rate for Cook Inlet and GoM shelf leases. The net result was a 50% royalty rate increase from prior sales (12.5 to 18.75%).

The table below illustrates the royalty rate implications of the IRA language and the DOI decisions.

AreaSaleDate% royalty: <200m water depth% royalty: >200m water depth
Cook Inlet2446/21/201712.512.5
Cook Inlet25812/30/202218.7518.75


  • The base primary term for GoM shelf leases is only 5 years vs. 10 years for leases in .>800 m of water.
  • In lease year 8 and beyond the rental rates are nearly double for shelf leases vs. deepwater leases ($40/ac vs. $22/ac).
  • While deepwater development typically requires more time, the higher rental penalty for delayed shelf production (which must be approved by BSEE) is not warranted. $40/acre or $240,000 per year (plus inspection and permitting fees) is a high cost for a marginal shelf lease.
  • Cook Inlet Sale 244 drew 14 high bids totaling more than $3 million. Sale 258 drew only 1 bid of $64,000. While many factors influence lease sale participation, the 50% increase in royalty rate certainly made the Cook Inlet leases less attractive.
  • Other than the increased royalty rate, the terms for both Cook Inlet sales were essentially the same. The primary lease term was 10 years and the minimum bonus bid was $25/hectare for both sales. The rental rate was increased by only $3/hectare ($13 to $16).

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An internal memo from the U.S. Interior Department suggesting that the agency set the highest possible royalty fee on potential oil and gas development before last year’s Cook Inlet lease sale is drawing blowback from the Democratic chair of the Senate Energy and Natural Resources Committee.

West Virginia Sen. Joe Manchin said in a statement he was “appalled” by the memo, which he said was leaked and prioritized a “radical climate agenda” over the energy needs of Alaskans and the U.S.

Anchorage Daily News

From the decision memo:

While a 16 ⅔ percent royalty may be more likely to facilitate expeditious and orderly development of OCS resources and potentially offer greater energy security to residents of the State of Alaska, a reasonable balancing of the environmental and economic factors for the American public favors the maximum 18 ¾ percent royalty for Cook Inlet leases.

Sale 258 Decision Memo

The lower royalty rate probably would not have made much difference in the outcome of this sale, which only drew one bid, but the attitude expressed in the decision memo is rather disappointing given the Department’s mission, as expressed in the OCS Lands Act, to make resources available for expeditious and orderly development.

What might have made the sale more attractive was royalty suspensions, Option D.5.b (below). This would have been the best means of supporting the objectives of Senator Manchin, the other authors of the congressional leasing mandate, and the State of Alaska.

Option D.5.b: Offer Royalty Suspensions
BOEM could offer royalty suspensions with the goal of making resources available for expeditious and orderly development. However, BOEM does not recommend royalty suspensions as the recommended lease term options are expected to balance the goals outlined earlier in this memo

Sale 258 Decision Memo

Those who are concerned by the Sale 258 Decision Memo should be more troubled by the Proposed 5 Year Leasing Plan, most notably this stunning sentence which justifies the minimalist plan and signals a phasing out of offshore oil and gas leasing:

The long-term nature of OCS oil and gas development, such that production on a lease can continue for decades makes consideration of future climate pathways relevant to the Secretary’s determinations with respect to how the OCS leasing program best meets the Nation’s energy needs.

5 Year Leasing Program, p.3

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The administration has taken steps toward a resumption of leasing on Federal onshore lands, which account for only 7% of domestically produced oil and 8% of our natural gas. While this is a positive step, our economy is largely being driven by production on private lands, absent which we would have a serious supply crunch. This new EIA graphic illustrates where the growth in natural gas production has been, and most of that growth has been on private land.

The growth in US oil production has been largely dependent on the Permian Basin:

Industry leaders have raised concerns about the extent to which Permian production can continue to grow and the country’s over-reliance on shale production.

There are no private offshore lands, and the future of US offshore production is almost entirely in the hands of the Federal government. It has now been 525 days since the last offshore lease sale. The Administration chose not to appeal the DC Federal Court decision vacating Sale 257, leaving that to the State of Louisiana and API (parties that actually support offshore oil and gas leasing).

It’s disappointing that the reasoning behind the judge’s Sale 257 decision has received so little attention, especially given that it hinged on BOEM not analyzing the benefit of high oil prices. (i.e. <leasing = <production = >prices = <intl consumption = < CO2) The decision was issued as Russian troops were amassing on the Ukraine border only 28 days before the invasion. Oil prices (WTI) had already reached $87/bbl and would soon spike to $120/bbl, so the decision embracing higher oil prices was (at best) bad timing. Keep in mind that this was not a matter of BOEM failing to consider GHG issues; BOEM had conducted those assessments. The judge’s decision was specific to BOEM not analyzing the GHG benefits of reduced foreign consumption as a result of the higher prices associated with reduced leasing.

Meanwhile, The 5 year program, without which offshore leasing cannot proceed, expires in June. Fellow Democrats Manchin and Kelly sent a letter to the President on 31 March urging the Administration to develop and implement a new 5 year program without delay. There is no online evidence of a response. Presumably, the 5 year program issue will be addressed in the bipartisan energy legislation that Senator Manchin is drafting.

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These bills probably aren’t going anywhere at this time, but would help strengthen the integrity of the US offshore program. The bills are generally consistent with the views expressed by Senators Manchin (D-WV) and Kelly (D-AZ) in a letter to the President.

  • The Unleashing American Energy Act requires a minimum of two oil and gas lease sales to be held annually in available federal waters in the Central and Western Gulf of Mexico Planning Area, and in the Alaska Region of the Outer Continental Shelf.
  • The Securing American Energy and Investing in Resiliency Act requires the Department of the Interior to conduct all remaining offshore oil and gas lease sales in the current leasing plan and issue leases won as a result of Lease Sale 257.
  • The Strategy to Secure Offshore Energy Act requires the publications of the 2022-27 plan for offshore oil and gas lease sales by the time the current plan expires on June 30, 2022.

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500 days (and counting) since the last US offshore oil and gas lease sale. Abbreviated chronology:

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The current 5 year leasing program expires on June 30, 2022. Absent a new program, no lease sales may be held.

We are writing to urge you to develop and implement a new Five-Year Program for oil and gas production in the Gulf of Mexico without delay.

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