Minerals Management Service (MMS)
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Minerals Management Service (MMS)
The Minerals Management Service (MMS), a bureau within the United States Department of the Interior (DOI), is charged with “manag[ing] the ocean energy and mineral resources on the Outer Continental Shelf and Federal and American Indian mineral revenues to enhance public and trust benefits, promote responsible use, and realize fair value.”[1] MMS oversees two operations, namely Offshore Energy and Minerals Management (OEMM) as well as Minerals Revenue Management (MRM).[2] Although most commonly known for its work with the oil industry, particularly after the April 2010 Deepwater Horizon oil leak in the Gulf of Mexico, MMS oversees a wide range of such energy projects such offshore wind, wave, and current systems. MMS is headquartered in Washington, D.C., but is based operationally in Denver, CO.
Origins/History
In 1982, Congress passed the Federal Oil and Gas Royalty Management Act of 1982. The act required the Secretary of the Interior to establish a system for determining royalty fees, fines, and other payments owed as well as to establish a system for inspection of oil rigs—to ensure that they are in compliance with relevant federal laws and regulations.[3] To that end, Secretary of the Interior James Watt created the Minerals Management Service by Secretarial Order. This resulted in the consolidation of minerals revenue management from the U.S. Geological Survey, the Bureau of Land Management and the Bureau of Indian Affairs. Since then, MMS has been managing the collection of revenues generated from programs including: oil and gas, coal, metals, potash, and renewable energy resources. MMS collects approximately $13 billion annually—that is about 95% of the revenue that the Department of the Interior collects.[4]
Outer Continental Shelf (OCS) Jurisdiction
Part V of the UNCLOS Treaty covers what is called the Exclusive Economic Zone (EEZ) and establishes the EEZ to lie no further than 200 nautical miles from the baseline (most often the low-water line).[5] Within the EEZ, the treaty makes other subdivisions of the territory, granting more rights to the state as one gets closer to the state’s coastline. Although the United States has failed to ratify UNCLOS, it is a signatory to the treaty and, as such, it must act in a manner that is not inconsistent with the spirit of the agreement. As such, the jurisdiction of the United States, and therefore MMS, is limited to the EEZ.
The Outer Continental Shelf Lands Act of 1953 establishes the boundary between state and federal control of the coast of any coastal state. With some exceptions (most notably Florida and Texas), states are given control of the submerged lands that extend up to three miles from their coastline.[6] The federal government takes control of all seas and lands that extend beyond the three mile point to the end of the EEZ.
Current Operations, Structure, and Functions
Presently, MMS has two divisions: Offshore Energy and Minerals Management, and Minerals Revenue Management.
Offshore Energy and Minerals Management (OEMM)
OEMM is responsible for managing mineral resources of the Outer Continental Shelf (OCS). This comprises approximately 1.7 billion acres of submerged land containing about 60% of the oil and 40% of the natural gas resources estimated to be contained in the remaining undiscovered fields in the United States. On the OCS, OEMM is responsible for oversight of renewable energy programs as well as offshore oil and gas leasing. It is the responsibility of DOI (and, subsequently, MMS) to ensure that the U.S. government receive fair market value for leases and that oil and gas activities operate safely and take maximum precautions to protect the environment.
OEMM has divided the continental shelf into three regions: the Gulf of Mexico, the Pacific, and Alaska. Leases for the Atlantic region are handled through the Gulf of Mexico Regional Offices.[[[7]]] Currently, the majority of the nation’s offshore operations occur in the Gulf of Mexico, the Pacific, and Alaska. Historically, the Atlantic region has not proven to be rich with hydrocarbons. However, in recent years the Atlantic region has been an area of increasing interest. In April 2010, Secretary of the Interior Salazar announced approval of the Cape Wind Energy Project on the OCS—just offshore from Massachusetts.[8] Also, MMS has begun the process necessary to lease a portion of the OCS 50 miles off the coast of Virginia. This portion of the OCS covers approximately 2.9 million acres and is estimated to contain 130 million barrels of oil and 1.14 trillion cubic feet of natural gas. The lease, known as Lease Sale 200, is scheduled for 2011.[9]
Minerals Revenue Management (MRM)
The MRM is responsible for accounting and management of all revenues associated with federal offshore mineral leases as well as onshore mineral leases. MRM, in conjunction with the Bureau of Indian Affairs, also provides revenue management for mineral leases on Native American Reservation lands. The MRM processes nearly $1 billion each month. While revenues are subject to fluctuation in accordance with market prices, the average annual revenue over the past five years has been $13 billion (with a peak in 2008 of $23 billion). Generally, money collected from offshore operations is split between the federal government and the state government. (For more information on offshore lease revenues, see “Leasing Process and Cash Flows”) [10]
Revenues from onshore mineral leases normally are a 50-40-10 split. The state in which the lease is located receives roughly 49% of the revenues, 40% goes to the Reclamation Fund of the U.S. Treasury, and the remaining 10% goes into the U.S. Treasury’s General Fund. One exception to this rule is Alaska: it receives 90% of the revenues generated from leasing operations. Money collected from Native American Reservation land leases is returned in full (100%) to respective Native American tribes or individual Native American mineral owners through the Office of Trust Funds Management.[[[11]]]
Onshore Leasing
While MMS is responsible for offshore activities, onshore leases are managed by the Department of the Interior’s Bureau of Land Management and the Department of Agriculture’s U.S. Forest Service. Leases involving Native American Reservation lands (these are not federal leases) are administered by the Bureau of Indian Affairs and the Bureau of Land Management.[12]
Leasing Process and Cash Flows
Prior to putting up a piece of the OCS for lease, it must be included in what is known as an approved “5-Year Program,” pursuant to the OCS Land Act of 1982.[13] Development of a five-year plan requires three separate comment periods, two draft proposals, a final proposal, and the development of an environmental impact statement (EIS). This process takes roughly two and a half years. The final proposal is then sent to Congress for approval or modification.[14]
The next step in the process involves working with private sector businesses to determine which blocks within the OCS planning area they have an interest in potentially leasing. Once determined, the public has the opportunity to comment on the proposed lease area and a final EIS is published. MMS then announces a notice of sale, collects bids, determines a winner, and issues the lease.[15]
The lease gives the lessee the right to explore, develop, and extract minerals from a plot of land on the OCS. Normally, this plot is nine square miles (three miles along each side). Leases run for a minimum of five years and a maximum of ten years. If oil is discovered within that period, the lease is extended for as long as production continues.[16]
Once the lease is acquired, the lessee pays what is known as a “bonus bid.” Ideally, this bid reflects the opportunity cost of exploring and producing the available resources. During the exploratory phase (prior to actual production) the lessee pays an annual rental on the land held by the lease, which reflects the holding cost of the lease. Recently a trend has developed wherein rental amounts increase year after year. This represents an effort to encourage faster exploration and development. After production has begun, the federal government receives royalty payments based on a percentage of the amount of production.[17] Until recently, producers were allowed to make this payment in product as opposed to cash.
OCS revenues are shared between both the Federal government and the coastal states off of which there are offshore operations. States receive a percentage of the revenue generated by these leases that is determined by the location of the operation relative to the state’s coastline. For each fiscal year between 2007 and 2010, $250 million is shared with six coastal states. Also, OCS revenues provide approximately $900 million to the Land and Water Conservation Fund and roughly $150 to the Historic Preservation Fund annually. Any remaining funds are sent to the U.S. Treasury’s General Fund.[18]
Recent Changes and Announced Re-organization Plans
On 19 May 2010, Secretary of the Interior Ken Salazar, signed a Secretarial Order that will result in a fundamental restructuring of MMS in response to ongoing accusations of conflict of interest in the organization—that collects revenues from oil and gas companies as well as inspects offshore operations. The newly structured MMS will have three divisions: the Bureau of Ocean Energy Management, the Bureau of Safety and Environmental Enforcement, and the Office of Natural Resource Revenue. Pursuant to this order, the Bureau of Ocean Energy Management will be responsible for development on the OCS, the Bureau of Safety and Environmental Enforcement will be responsible for ensuring comprehensive oversight, safety, and environmental protection in offshore energy activities, and the Office of Natural Resources and Revenue will be responsible for MMS’s royalty revenue management.[19] At the time of this writing, the Assistant Secretary–Land and Minerals Management, and the Assistant Secretary–Policy, Management and Budget are developing an implementation schedule due to be completed by 18 June 2010.[[[20]]]
Other recent changes include a battery of new ethics reforms, a review of the MMS NEPA (National Environmental Policy Act) procedures for OCS oil, as well as Secretary Salazar’s elimination of the royalty-in-kind program—that allowed lessees to pay for their rights in product (i.e. oil or natural gas) rather than in cash.[21]
References
^"About the Minerals Management Service." Minerals Management Service. http://www.mms.gov/aboutmms/ (accessed May 28, 2010).
^ Ibid.
^ Oil and Gas Royalty Management Act, 30 U.S.C. §1711 (2009). Available at:http://www.law.cornell.edu/uscode/30/usc_sec_30_00001711----000-.html
^"Salazar Divides MMS's Three Conflicting Missions." United States Department of the Interior. http://www.doi.gov/news/pressreleases/Salazar-Divides-MMSs-Three-Conflicting-Missions.cfm (accessed May 28, 2010).
^United Nations Convention on the Law of the Sea art. 57,
Dec 10, 1982, 1833 U.N.T.S. 397 UNCLOS. Available at:http://www.un.org/Depts/los/convention_agreements/texts/unclos/closindx.htm
^Outer Continental Shelf Lands Act, 43 U.S.C. §1312 (2009). Available at:http://www.law.cornell.edu/uscode/html/uscode43/usc_sec_43_00001312----000-.html
^"Atlantic Activities: Virginia Lease Sale 220." Minerals Management Service: Offshore Energy & Minerals Management. http://www.mms.gov/offshore/atlantic.htm (accessed May 28, 2010).
^"Secretary Salazar Announces Approval of Cape Wind Energy Project on Outer Continental Shelf off Massachusetts." United States Department of the Interior. http://www.doi.gov/news/doinews/Secretary-Salazar-Announces-Approval-of-Cape-Wind-Energy-Project-on-Outer-Continental-Shelf-off-Massachusetts.cfm (accessed May 28, 2010).
^"Lease Information: Virginia Lease Sale 220." Minerals Management Service: Offshore Energy & Minerals Management. http://www.mms.gov/offshore/220.htm (accessed May 28, 2010).
^"About MRM." Minerals Management Service: Minerals Revenue Management. http://www.mrm.mms.gov/Intro/WhoWeAre.htm (accessed May 28, 2010).
^"About MRM." Minerals Management Service: Minerals Revenue Management. http://www.mrm.mms.gov/Intro/WhoWeAre.htm (accessed May 28, 2010).
^"About MRM." Minerals Management Service: Minerals Revenue Management. http://www.mrm.mms.gov/Intro/WhoWeAre.htm (accessed May 28, 2010).
^Outer Continental Shelf Lands Act, 43 U.S.C. §1344 (2009). Available at: http://www.law.cornell.edu/uscode/html/uscode43/usc_sec_43_00001344----000-.html
^"Oil and Gas Leasing on the Outer Continental Shelf." Minerals Management Service. http://www.mms.gov/PDFs/5MMS_Leasing101.pdf (accessed May 28, 2010).
^ Ibid.
^ Ibid.
^ Ibid.
^ Ibid.
^"Salazar Divides MMS's Three Conflicting Missions." United States Department of the Interior. http://www.doi.gov/news/pressreleases/Salazar-Divides-MMSs-Three-Conflicting-Missions.cfm (accessed May 28, 2010).
^"Secretary of the Interior Order No. 3299." United States Department of the Interior. http://www.doi.gov/deepwaterhorizon/loader.cfm?csModule=security/getfile&PageID=32475 (accessed May 28, 2010).
^"Reforming MMS." Department of the Interior. http://www.doi.gov/deepwaterhorizon/upload/05-07-10-reform-fact-sheet.pdf (accessed May 28, 2010); "Council on Environmental Quality and Department of the Interior Announce Review of Minerals Management Service NEPA Procedures." United States Department of the Interior. http://www.doi.gov/news/pressreleases/Council-on-Environmental-Quality-and-Department-of-the-Interior-Announce-Review-of-Minerals-Management-Service-NEPA-Procedures.cfm (accessed May 28, 2010).
