1. Office of Natural Resources Revenue U.S. Department of the Interior Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity December 18, 2013 Karen Osborne, Program Analyst Gulf of Mexico Energy Security Act of 2006 (GOMESA) Phase II Regulations Update

2. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Outline  Background  GOMESA 101  Regulatory Timeline  Revenue Sharing Summary and Estimates

3. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Current Revenue Sharing Programs with States under the OCSLA  8(g): The 1986 OCSLA Amendments provided for certain coastal States to receive 27 percent of revenues generated from Outer Continental Shelf (OCS) oil and gas leases. The leases are located in Federal waters beginning at the State’s coastal boundary and ending 3 nautical miles seaward of the boundary (the 8(g) zone).  8(p): The Energy Policy Act of 2005 (EPAct) provided for coastal States to share in a portion of 27 percent of revenues generated from OCS renewable energy leases. States within 15 nautical miles of the center of a project, where the project is located at least partially in a State’s 8(g) zone, share in the revenues.  GOMESA: The Gulf of Mexico Energy Security Act of 2006 provided for the four Gulf Producing States and their eligible coastal political subdivisions to share 37.5 percent of qualified revenues from OCS oil and gas leases issued since December 20, 2006. Revenues from a subset of leases were shared beginning with the 2009 disbursements. Revenues from a more substantial set of leases will be shared beginning in 2017.

4. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity GOMESA Origins  GOMESA revenue sharing is a vestige of the proposed Conservation and Reinvestment Act (CARA), which did not become law, and the EPAct Section 384 Coastal Impact Assistance Program (CIAP).  The 2001 Coastal Assistance Program authorization (administered by NOAA) provided $150 million to 7 states.  Under EPAct, CIAP provided $1 billion over four years (2007-2010) to 6 states.  From 2007 through 2016, GOMESA shares revenues from two small geographic areas in the Gulf of Mexico (GOM), known as the 181 Area in the Eastern Planning Area, and the 181 South Area, with 4 states.  Starting in 2017, GOMESA shares revenues from across the entire GOM OCS (up to a cap of $375 million through 2055), with 4 states.

5. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity GOMESA Revenue Sharing Areas  FY 2007 – FY 2016 (Phase I)  Sharing of revenues only from: “181 East” leases (A) “181 South” leases (B)  FY 2017 and after (Phase II)  Sharing of revenues from all Gulf leases issued since December 20, 2006  Cap of $375 million per year 2017-2055

6. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity GOMESA Revenue Sharing Areas

7. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity “Qualified OCS Revenues” Cash Bonuses Selected Rentals Royalties (including RIK sales, except SPR transfers) Phase I Revenue Sharing  Began in FY 2009 for FY 2008 receipts  37.5 percent of “Qualified OCS Revenues” to States and coastal political subdivisions (CPS)  4/5 (30 percent) to 4 Gulf Coast States  1/5 (7.5 percent) to 42 CPS  62.5 percent Federal Share  1/5 (12.5 percent) to LWCF  4/5 (50 percent) to Treasury

8. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Phase I Revenue Sharing  From FY 2009 through FY 2013, ONRR disbursed over $29.4 million in qualified GOMESA Phase I revenues to the States and their CPS.  For FY 2012 and FY 2013, the total shared among the four States and their CPS was $0.31 million. As a result of BOEM’s Sale 227 in March 2013, the total shared in FY 2014 will be over $4.2 million.

9. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Uses of GOMESA Funds  Coastal Protection  Conservation; Restoration; Hurricane Protection  Mitigation of damage to wildlife or natural resources  Implementation of a federally-approved conservation management plan  Mitigation of effects from OCS activities through onshore infrastructure project  Associated planning and administrative expenses *Note: No enforcement mechanism provided in GOMESA

10. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity  State shares (37.5 percent)  Formula based on “inverse distance” between the lease and the State’s coastline  All eligible tracts weighted equally  Example  State A = 1/100 or.01  State B = 1/50 or.02 State A State B 100 miles 50 miles Receives 12.5% of revenues (=1/3 X 37.5%) Receives 25.0% of revenues (=2/3 X 37.5%) Revenue Sharing Allocation Formula

11. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Alabama Share = (I AL ÷ (I AL + I LA + I MS + I TX )) x Qualified OCS Revenues Louisiana Share = (ILA ÷ (IAL + ILA + IMS + ITX)) x Qualified OCS Revenues Mississippi Share = (I MS ÷ (I AL + I LA + I MS + I TX )) x Qualified OCS Revenues Texas Share = (I TX ÷ (I AL + I LA + I MS + I TX )) x Qualified OCS Revenues *The minimum State revenue share is 10% of qualified OCS revenues due to the Gulf Producing States and their CPS **In the formulas, I AL, I LA, I MS, and I TX represent the sum of the inverses of the closest distances between Alabama, Louisiana, Mississippi and Texas and all applicable leased tracts. State Inverse Distance Formula  37.5 percent of qualified OCS revenues to Gulf producing States/CPS  30 percent to States*  7.5 percent directly to Coastal Political Subdivisions  Calculate the minimum distance between the points on each State’s coastline to the geographic centers of the applicable leased tracts.  Divide the sum of the State’s inverse minimum distances from all applicable leased tracts, by the sum of the inverse minimum distances from all applicable leased tracts across all four Gulf producing States.  Multiply the result by the amount of qualified OCS revenues to be shared.

12. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Gulf Producing State Applicable Leased Tracts Sum of Inverse Distances t1t1 t2t2 Minimum Distance (nautical miles) Inverse Distance Minimum Distance (nautical miles) Inverse Distance Alabama500.0200700.01430.0343 Louisiana900.0111800.01250.0236 Mississippi700.0143600.01670.0310 Texas2300.00432100.00480.0091 All States4400.04974200.04830.0980 Suppose that fiscal year qualified OCS revenues are $96 million, $12 million to the LWCF and $36 million of which would be allocated to the Gulf producing States. Applying the inverse distance formula, the $36 million would be allocated to the Gulf producing States as shown below. Alabama Share = (0.0343 ÷ 0.0980) x $36 million = $12,600,000.00 Louisiana Share = (0.0236 ÷ 0.0980) x $36 million = $8,669,387.76 Mississippi Share = (0.0310 ÷ 0.0980) x $36 million = $11,387,755.10 Texas Share = (0.0091 ÷ 0.0980) x $36 million = $3,342,857.14* *Texas’s share would be adjusted to reflect minimum 10 percent distribution; all other State shares would be reduced proportionately. Inverse Distance Example

13. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Allocation Formula - CPS  Coastal Political Subdivision shares:  The CPS formula is partially based (50 percent) on inverse distance between the lease and the closest perimeter point of each CPS.  The remainder of the CPS shares (50 percent) are based on: Relative population (25 percent) Relative coastline length (25 percent)

14. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Implementing the GOMESA Revenue Sharing Program The rulemaking was divided into two parts:  First phase (Final Rule, AD46, 12/23/2008)  Implemented the methodology for sharing GOMESA Phase I qualified OCS revenues  Covered FY 2007-2016 revenue sharing  Second phase (Proposed Rule, AA11, est. 2/2014)  Moves the Phase I regulations from BOEM to ONRR  Sets forth how the Department plans to implement GOMESA Phase II revenue sharing Shares revenues from all non-8(g) GOM leases issued after December 20, 2006 Covers revenue sharing for FY 2017 and beyond

15. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity AA11 Proposed Rule Timeline D.C. ClearanceStart DateCompleted (or estimated) FRLO submitted to ICCO and BOEM FRLO10/28/1311/19/13-BOEM; ICCO still reviewing ONRR CoS surnames11/19/1311/22/13 ONRR Director surnames11/25/1311/29/13 DAS NRRM surnames12/2/1312/20/13 AS-LM surnames12/23/131/03/14 AS-PMB surnames01/06/1401/17/14 Exec Sec surnames1/20/141/24/14 FRLO delivers to OFR for publication1/27/141/28/14 Proposed Rule published in FR1/31/14 Final Rule drafted, incorporating public comments and ONRR responses 4/1/145/1/14

16. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Phase I Revenue Sharing Summary  From FY 2009 through FY 2013, ONRR disbursed over $29.4 million in qualified GOMESA Phase I revenues to the States and their CPS.  As a result of BOEM’s Sale 227 in March 2013, the total shared with the States in FY 2014 will be over $4.2 million.  On March 19, 2014 BOEM will hold a joint Central/ Eastern Planning Area sale. The receipts from these sales will be disbursed in FY 2015. GOMESA Phase I Disbursements (in $millions) 200920102011201220132014 States/CPS$25.25$2.73$0.86$0.31 $4.23

17. Industry ComplianceAccurate Revenues & DataProfessionalism & Integrity Phase II Revenue Sharing Estimates  ONRR will disburse FY 2017 qualified revenues to the States and their CPS in FY 2018.  BOEM estimates that GOMESA Phase II revenues will exceed the cap beginning in FY 2017, so the States and their CPS will share $375 million from FY 2017 through FY 2055.  The cap is lifted beginning in FY 2056. BOEM estimates that total sharable annual revenues could be between $5 - $8 billion at that time.