Outer Continental Shelf Central Planning Area Gulf of Mexico Oil and Gas Lease Sale

Federal Register: February 12, 2010 (Volume 75, Number 29)

Notices

Page 6874-6882

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr12fe10-18

DEPARTMENT OF THE INTERIOR

Minerals Management Service

Outer Continental Shelf (OCS) Central Planning Area (CPA) Gulf of

Mexico (GOM) Oil and Gas Lease Sale 213

AGENCY: Minerals Management Service, Interior.

ACTION: Final Notice of Sale (NOS) 213.

SUMMARY: On Wednesday, March 17, 2010, the Minerals Management Service

(MMS) will open and publicly announce bids received for blocks offered in CPA Oil and Gas Lease Sale 213, pursuant to the OCS Lands Act (43

U.S.C. 1331-1356, as amended) and the regulations issued thereunder (30

CFR part 256). The Final NOS 213 Package contains information essential to bidders, and bidders are responsible for knowing the information within the documents contained in the Package.

DATES: Public bid reading for the CPA Oil and Gas Lease Sale 213 will begin at 9 a.m., Wednesday, March 17, 2010, at the Louisiana Superdome, 1500 Sugarbowl Drive, New Orleans, Louisiana, 70112. The lease sale will be held in the St. Charles Club Room on the second floor (Loge

Level). Entry to the Superdome will be on the Poydras Street side of the building through Gate A on the Ground or Plaza Level, and parking should be available at Garage 6. All times referred to in this document are local New Orleans times, unless otherwise specified.

Please Note: Starting with this sale, MMS is revising the lease terms for blocks in water depths of 400 meters to less than 1,600 meters. Blocks in 400 to less than 800 meters change from an initial 8-year lease term (where a well has to be spudded within the first 5 years of the initial 8-year term to avoid lease cancellation) to a 5-year initial lease term (where spudding a well within the initial lease term would automatically extend the lease term to 8 years).

Blocks in 800 to less than 1,600 meters change from a 10-year initial lease term to a 7-year initial lease term (where spudding a well within the initial lease term would automatically extend the lease term to 10 years). The MMS received 9 comments on the lease terms changes in the Proposed Notice of Sale.

ADDRESSES: Bidders can obtain a Final NOS 213 Package containing the

NOS and the supporting documents by writing or calling the: Gulf of

Mexico Region Public Information Unit, Minerals Management Service, 1201 Elmwood Park Boulevard, New Orleans, Louisiana 70123-2394, (504) 736-2519 or (800) 200-GULF, MMS GOM Internet Web site at: http:// www.gomr.mms.gov.

Filing of Bids: Bidders must submit sealed bids to the Regional

Director (RD), MMS Gulf of Mexico Region, 1201 Elmwood Park Boulevard,

New Orleans, Louisiana, 70123-2394, between 8 a.m. and 4 p.m. on normal working days, and from 8 a.m. to the Bid Submission Deadline of 10 a.m. on Tuesday, March 16, 2010, the day before the lease sale. If bids are mailed, please address the envelope containing all of the sealed bids as follows: Attention: Supervisor, Leasing and Financial Responsibility

Unit (MS 5422), Leasing and Environment, Leasing Activities Section,

MMS Gulf of Mexico Region, 1201 Elmwood Park Boulevard, New Orleans,

Louisiana 70123-2394. Contains Sealed Bids for CPA Oil and Gas Lease

Sale 213, Please Deliver to Ms. Nancy Kornrumpf, 6th Floor,

Immediately.

Please note: Bidders mailing bid(s) are advised to call Ms.

Nancy Kornrumpf at (504) 736-2726 or Ms. Cindy Thibodeaux at (504) 736-2809 immediately after putting their bid(s) in the mail. If the

RD receives bids later than the time and date specified above, he will return those bids unopened to bidders. Should an unexpected event such as flooding or travel restrictions be significantly disruptive to bid submission, the MMS may extend the Bid Submission

Deadline. Bidders may call (504) 736-0557 or access our MMS Gulf of

Mexico Internet Web site at: http://www.gomr.mms.gov for information about the possible extension of the Bid Submission Deadline due to such an event.

Areas Offered for Leasing: The MMS is offering for leasing in CPA

Oil and Gas Lease Sale 213 all blocks and partial blocks listed in the document ``List of Blocks Available for Leasing'' included in the Final

NOS 213 Package. All of these blocks are shown on the following leasing maps and Official Protraction Diagrams (OPD's):

Outer Continental Shelf Leasing Maps--Louisiana Map Numbers 1 Through 12

(These 30 maps sell for $2.00 each)

LA1........................................ West Cameron Area (Revised November 1, 2000).

LA1A....................................... West Cameron Area, West Addition (Revised February 28, 2007).

LA1B....................................... West Cameron Area, South Addition (Revised February 28, 2007).

LA2........................................ East Cameron Area (Revised November 1, 2000).

LA2A....................................... East Cameron Area, South Addition (Revised November 1, 2000).

LA3........................................ Vermilion Area (Revised November 1, 2000).

LA3A....................................... South Marsh Island Area (Revised November 1, 2000).

LA3B....................................... Vermilion Area, South Addition (Revised November 1, 2000).

LA3C....................................... South Marsh Island Area, South Addition (Revised November 1, 2000).

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LA3D....................................... South Marsh Island Area, North Addition (Revised November 1, 2000).

LA4........................................ Eugene Island Area (Revised November 1, 2000).

LA4A....................................... Eugene Island Area, South Addition (Revised November 1, 2000).

LA5........................................ Ship Shoal Area (Revised November 1, 2000).

LA5A....................................... Ship Shoal Area, South Addition (Revised November 1, 2000).

LA6........................................ South Timbalier Area (Revised November 1, 2000).

LA6A....................................... South Timbalier Area, South Addition (Revised November 1, 2000).

LA6B....................................... South Pelto Area (Revised November 1, 2000).

LA6C....................................... Bay Marchand Area (Revised November 1, 2000).

LA7........................................ Grand Isle Area (Revised November 1, 2000).

LA7A....................................... Grand Isle Area, South Addition (Revised February 17, 2004).

LA8........................................ West Delta Area (Revised November 1, 2000).

LA8A....................................... West Delta Area, South Addition (Revised November 1, 2000).

LA9........................................ South Pass Area (Revised November 1, 2000).

LA9A....................................... South Pass Area, South and East Additions (Revised November 1, 2000).

LA10....................................... Main Pass Area (Revised November 1, 2000).

LA10A...................................... Main Pass Area, South and East Additions (Revised November 1, 2000).

LA10B...................................... Breton Sound Area (Revised November 1, 2000).

LA11....................................... Chandeleur Area (Revised November 1, 2000).

LA11A...................................... Chandeleur Area, East Addition (Revised November 1, 2000).

LA12....................................... Sabine Pass Area (Revised February 28, 2007).

Outer Continental Shelf Official Protraction Diagrams

(These 19 diagrams sell for $2.00 each.)

NG15-02.................................... Garden Banks (Revised February 28, 2007).

NG15-03.................................... Green Canyon (Revised November 1, 2000).

NG15-05.................................... Keathley Canyon (Revised February 28, 2007).

NG15-06.................................... Walker Ridge (Revised November 1, 2000).

NG15-08.................................... Sigsbee Escarpment (Revised February 28, 2007).

NG15-09.................................... Amery Terrace (Revised October 25, 2000).

NG16-01.................................... Atwater Valley (Revised November 1, 2000).

NG16-02.................................... Lloyd Ridge (Revised August 1, 2008).

NG16-04.................................... Lund (Revised November 1, 2000).

NG16-05.................................... Henderson (Revised August 1, 2008).

NG16-07.................................... Lund South (Revised November 1, 2000).

NG16-08.................................... Florida Plain (Revised February 28, 2007).

NH15-12.................................... Ewing Bank (Revised November 1, 2000).

NH16-04.................................... Mobile (Revised November 1, 2000).

NH16-05.................................... Pensacola (Revised February 28, 2007).

NH16-07.................................... Viosca Knoll (Revised November 1, 2000).

NH16-08.................................... Destin Dome (Revised February 28, 2007).

NH16-10.................................... Mississippi Canyon (Revised November 1, 2000).

NH16-11.................................... De Soto Canyon (Revised August 1, 2008).

Bidders are advised that the Central-Eastern Planning Area Boundary was revised to match the Federal OCS Administrative Boundary for the

DeSoto Canyon, Lloyd Ridge, and Henderson Areas. The boundary splits blocks that were formerly ``stair-stepped'' and can be seen on the

``Stipulations and Deferred Blocks'' or ``Lease Terms and Economic

Conditions'' maps included in the Final NOS 213 Package. The boundaries along the Pensacola, Destin Dome, and Florida Plain Areas will remain

``stair-stepped'' for this lease sale, as they were for CPA Sale 208.

The administrative boundaries can also be viewed at: http:// www.mms.gov/ld/AdminBoundaries.htm.

Please note: A CD-ROM (in ARC/INFO and Acrobat (.pdf) format) containing all of the GOM leasing maps and OPD's, except for those not yet converted to digital format, is available from the GOM

Region Public Information Unit for a price of $15. These GOM leasing maps and OPD's are also available for free online in .pdf and .gra format at: http://www.gomr.mms.gov/homepg/lsesale/map_arc.html.

For the current status of all CPA leasing maps and OPD's, please refer to 66 FR 28002 (published May 21, 2001), 69 FR 23211 (published

April 28, 2004), 72 FR 27590 (published May 16, 2007), 72 FR 35720

(published June 29, 2007), and 73 FR 63505 (October 24, 2008). In addition, Supplemental Official OCS Block Diagrams (SOBD's) are available for blocks that contain the ``U.S. 200 Nautical Mile Limit'' line and the ``U.S.-Mexico Maritime Boundary'' line. These SOBD's are also available from the GOM Region Public Information Unit. For additional information, please call Ms. Tara Montgomery at (504) 736- 5722.

All blocks are shown on these leasing maps and OPD's. The available

Federal acreage of all whole and partial blocks in this lease sale is shown in the document ``List of Blocks Available for Leasing'' included in the Final NOS 213 Package. Some of these blocks may be partially leased or deferred, or transected by administrative lines such as the

Federal/state jurisdictional line. A bid on a block must include all of the available Federal acreage of that block. Also, information on the unleased portions of such blocks is found in the document ``Central

Planning Area Lease Sale 213--Unleased Split Blocks and Available

Unleased Acreage of Blocks with Aliquots and Irregular Portions Under

Lease or Deferred'' included in the Final NOS 213 Package.

Areas Not Available for Leasing: The following whole and partial blocks are not offered for lease in this lease sale:

Although currently unleased, the bid decision on the following block is under appeal and bids will not be accepted:

Mississippi Canyon (OPD NH16-10)

Block 943

This block is deferred until measures to ensure the safety of decommissioning operations are completed:

Green Canyon (OPD NG15-03)

Block 20

Whole blocks and portions of blocks that lie within the 1.4 nautical mile buffer zone north of the ``Western Gap'' continental shelf boundary between the United States and Mexico:

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Amery Terrace (OPD NG 15-09)

Whole Blocks: 280, 281, 318 through 320, and 355 through 359

Portions of Blocks: 235 through 238, 273 through 279, and 309 through 317

Sigsbee Escarpment (OPD NG 15-08)

Whole Blocks: 239, 284, 331 through 341

Portions of Blocks: 151, 195, 196, 240, 241, 285 through 298, 342 through 349

Whole blocks and portions of blocks that are adjacent to or beyond the United States Exclusive Economic Zone, in or adjacent to the area known as the northern portion of the Eastern Gap:

Lund South (OPD NG 16-07)

Whole Blocks: 128, 129, 169 through 173, 208, through 217, 248 through 261, 293 through 305, and 349

Henderson (OPD NG 16-05)

Whole Blocks: 466, 508 through 510, 551 through 554, 594 through 599, 637 through 643, 679 through 687, 722 through 731, 764 through 775, 807 through 819, 849 through 862, 891 through 905, 933 through 949, and 975 through 992

Portions of Blocks: 467, 511, 555, 556, 600, 644, 688, 732, 776, 777, 820, 821, 863, 864, 906, 907, 950, 993, and 994

Florida Plain (OPD NG 16-08)

Whole Blocks: 5 through 24, 46 through 67, 89 through 110, 133 through 154, 177 through 197, 221 through 240, 265 through 283, 309 through 327, and 363 through 370

Whole blocks and portions of blocks deferred by Gulf of Mexico

Energy Security Act:

Pensacola (OPD NH 16-05)

Blocks: 751 through 754, 793 through 798, 837 through 842, 881 through 886, 925 through 930, and 969 through 975

Destin Dome (OPD NH 16-08)

Whole Blocks: 1 through 7, 45 through 51, 89 through 96, 133 through 140, 177 through 184, 221 through 228, 265 through 273, 309 through 317, 353 through 361, 397 through 405, 441 through 450, 485 through 494, 529 through 538, 573 through 582, 617 through 627, 661 through 671, 705 through 715, 749 through 759, 793 through 804, 837 through 848, 881 through 892, 925 through 936, and 969 through 981

DeSoto Canyon (OPD NH 16-11)

Whole Blocks: 1 through 15, 45 through 59, and 92 through 102

Portions of Blocks: 16, 60, 61, 89 through 91, 103 through 105, and 135 through 147

Henderson (OPD NG 16-05)

Portions of Blocks: 114, 158, 202, 246, 290, 334, 335, 378, 379, 422, and 423

Statutes and Regulations: Each lease issued in this lease sale is subject to the OCS Lands Act of August 7, 1953; 43 U.S.C. 1331 et seq., as amended, hereinafter called ``the Act;'' regulations promulgated pursuant thereto; other statutes and regulations in existence upon the effective date of the lease; and those statutes enacted and regulations promulgated thereafter, except to the extent they are inconsistent with an express provision of the lease. This language conforms this term of

OCS mineral leases with that of onshore, Bureau of Land Management

(BLM) leases and avoids a narrow and never intended reading of the previous lease language to limit the obligation of lessees to comply with later enacted laws.

The MMS will use the recently revised Form MMS-2005 (October 2009) to convey leases; it can be viewed at: http://www.gomr.mms.gov/homepg/ mmsforms/FormMMS-2005.pdf. The lease form will be modified with the specific terms, conditions and stipulations applicable to each individual lease. Addressed below are the collective terms, conditions, and stipulations applicable to this sale. Where applicable, these terms, conditions and stipulations will be incorporated into each lease by addendum.

Lease Terms and Conditions: Initial periods, extensions of initial periods, minimum bonus bid amounts, rental rates, escalating rental rates for leases with an approved extension of the initial 5-year period, royalty rate, minimum royalty, and royalty suspension provisions, if any, applicable to this sale are noted below. Depictions of related areas are shown on the map ``Final, Central Planning Area,

Lease Sale 213, March 17, 2010, Lease Terms and Economic Conditions,'' for leases resulting from this lease sale.

Leases in water depths of 400 meters to less than 800 meters will be offered with a 5-year term with the opportunity to earn an extension of 3 additional years (5+3 years). The MMS is not offering leases in the sale with an 8-year term for these water depths as provided by regulations at 30 CFR 256.37(a)(3). This change relieves the MMS of the administrative burden of taking action to cancel a lease, and instead requires the lessee to apply for an extension with evidence that it has earned it by spudding a well to secure MMS approval.

A new lease term of 7 years with the opportunity to earn an extension of an additional 3 years (7+3 years) will apply to leases instead of the previous 10-year lease term in water depths of 800 to less than 1,600 meters. The deepwater challenges and drilling difficulties justifying longer lease terms under the OCSLA in 800 to less than 1,600 meters have diminished considerably, although not completely, over the last 25 years. The proposed 7+3 years lease term recognizes that exploration can typically be undertaken within the initial 7-year lease term, but development still may require the full 10-year term. In both the 400-800 and 800-1,600 meter cases, the lease expires at the end of the initial period if no well has been spudded before the end of the 5th or 7th year, respectively.

Initial Periods: 5 years for blocks in water depths of less than 400 meters (subject to administrative requirements noted below, spudding of an ultra-deep exploratory well within the 5-year initial lease term will extend the lease term to 8 years); 5 years for blocks in water depths of 400 to less than 800 meters (subject to administrative requirements noted below, the initial lease term will be extended to 8 years conditional upon the receipt of evidence of the spudding of an exploratory well within the initial 5-year lease term); 7 years for blocks in water depths of 800 meters to less than 1,600 meters (subject to administrative requirements noted below, the initial lease term will be extended to 10 years upon receipt of evidence of the spudding of an exploratory well within the initial 7-year lease term); and 10 years for blocks in water depths of 1,600 meters or deeper.

Water depth (meters)

Term (years)

0 to 25,000 feet TVD SS (see Extensions of Initial Periods below). 400 to The MMS expects a substantial amount of geological and geophysical (G&G) work to be completed prior to bidding on the lease.

Seven-year lease terms are normally sufficient for an operator to evaluate seismic data and commence drilling in the respective water depths. This is confirmed by the statistical data on producing deepwater leases that have completed their primary terms in 800 to less than 1,600 meters. Generally, those

Page 6878

that were not drilled by year 7 were not drilled until after lease year 10. That means they confronted circumstances that prevented drilling for reasons beyond the lessee's control and thus were authorized extensions beyond the 10-year primary term through MMS approved suspensions or inclusion in an approved federal unit being maintained by lease-holding operations. The flexibility to grant suspensions on a case-by-case basis or evaluate potential unitization agreements is not affected by the lease term changes beginning with this sale.

If an operator does not explore a lease during the revised initial term and the lease expires, another operator with a different perspective on the G&G and drilling may timely acquire and expeditiously drill the acreage.

Allowing lengthy periods for interpreting seismic data, planning and drilling an exploratory well is not consistent with promoting diligent development as mandated by the OCS Lands Act. We anticipate continued improvements in seismic imaging and processing techniques leading to shorter timelines. The MMS has found that few exploratory wells resulted from changes to the suspension regulations issued in 2002 and 2005 under 30 CFR 250.175(b) and (c) as related to subsalt and ultra-deep targets. Although these regulations apply to leases in less than 800 meters of water depth, it is reasonable to expect a similar result in water depths of 800 meters or deeper.

Accordingly, MMS maintains that the 5- and 7-year initial terms are adequate time periods to interpret seismic data, plan and begin an exploratory well.

Comment: Several commenters suggested that the initial lease term should consider MMS' ability to grant suspensions beyond the initial term for actions or events outside of a lessee's control even if they have not drilled an exploratory well.

MMS Response: For the 5+3 years and 7+3 lease years terms, the initial periods are 5 and 7 years and the extended initial periods are 8 and 10 years, respectively. MMS has the authority to grant suspensions as specified by regulation (30 CFR 250.168-177) under certain conditions. Normally, suspensions of operations (SOO's) are granted in situations where an operator was scheduled to commence a lease-holding operation within the term of a lease but was prevented from doing so for reasons beyond their control. Reasons beyond the control of the lessee may include unforeseen circumstances such as adverse weather, unavoidable accidents, or short delays in a prearranged rig release date. The MMS will continue to consider SOO's consistent with the regulations for these unique cases.

Comment: Several commenters suggested that MMS has already taken measures that encourage lessees to explore their leases. For example, the two-step rental rates in leases greater than 400 meters provide companies with an incentive to efficiently explore, develop, and produce their leases. Fair market value, diligence and expeditious development are already achieved through the existing lease terms and regulations.

One comment letter from Environment America espoused the opposing view. It supported further increasing the rental rates specifically in years 9 and 10 of the lease, asserting that increasing rental rates over the years of the lease encourages diligence by lease holders.

MMS Response: While the two-step rental in leases 400 meters and greater provides a fiscal incentive to lessees to expeditiously develop a lease, DOI cannot rely only on a fiscal lease provision to achieve programmatic goals across all leases. The initial lease term provides an administrative mechanism to ensure that, absent unusual circumstances, active leases will commence exploration by a specific time following acquisition. Moreover, statistics on producing deepwater leases that have completed their primary term in the last 5 years show that most of the leases in 800 to less than 1,600 meters have been able to spud a well by year 7. Generally, leases not drilled by year 7 were first drilled after lease year 10, meaning they received MMS approved suspensions or unitization with other leases where timely drilling did occur.

In addition, starting with this sale, MMS will require that the lessee commence an exploration well to hold a lease located in 800 to 1,600 meters of water depth beyond year 7 of the initial lease term. If that well encounters potentially commercial quantities of oil and gas, typically that alone will be sufficient cause to undertake timely development. If that well is dry, then the lessee can benefit from accelerated tax write-offs by timely relinquishing the lease.

Accordingly, it may not be necessary or even desirable to further raise rentals in years 9 and 10 of the extended lease term to encourage diligent exploration and development.

Comment: Chevron suggested that in the event MMS decides to move forward with issuing leases for 7-year terms with 3-year extensions, the Final Notice of Sale for OCS Lease Sale 213 should be modified to clarify that 7-year leases will be ``extended to 10 years if a well is spudded on the lease or in an approved unit which includes the lease within the initial 7-year lease term.'' Chevron added that they believe it is important to include the underlined language in the preceding sentence to ensure that there is no misunderstanding as to when the 3- year extension will or will not be granted.

MMS Response: The comment by Chevron suggests a change is needed in unitization policy in conjunction with MMS shortening certain lease terms. The MMS disagrees with Chevron's implication that we should change or need to formally clarify in the lease instrument a unitization policy that already is addressed in Article 17.2(a) of the model Unit Agreement that we are not modifying at this time. The MMS intends to continue following these existing unitization provisions under the new lease term policy that is commencing with this sale.

Minimum Bonus Bid Amounts: A bonus bid will not be considered for acceptance unless it provides for a cash bonus in the amount of $25 or more per acre or fraction thereof for blocks in water depths of less than 400 meters, or $37.50 or more per acre or fraction thereof for blocks in water depths of 400 meters or deeper. To confirm the exact calculation of the minimum bonus bid amount for each block, see ``List of Blocks Available for Leasing,'' contained in the Final NOS 213

Package. Please note that bonus bids must be in whole dollar amounts

(i.e., any cents will be disregarded by the MMS).

Rental Rates: Annual rentals for leases issued in this sale are to be paid at the rental rates summarized in the following table on or before the 1st day of each lease year until determination of well producibility is made, then at the expiration of each lease year until the start of royalty-bearing production.

Sale 213 Rental Rates per Acre or Fraction Thereof

Water depth in meters

Years 1-5

Years 6, 7, & 8+

0 to