Despite what you may still be reading about the 2010 Deepwater Horizon oil spill, the U.S. offshore oil and gas business is thriving. Last year, federal revenue attributable to Outer Continental Shelf (OCS) production equaled almost $9 billion, including $6.1 billion in royalties, over $2.6 billion in lease bonuses, and over $250 million in rentals. And with recent seismic, drilling, and production advances, companies operating on the OCS are seeing new deepwater opportunities in depths of 10,000 feet and drilling depths of 30,000 feet. But these exciting developments have generated many challenging legal issues.
To keep up with technological advances and to address traditional offshore risks such as location, weather events, and aging infrastructure, companies are spending billions of dollars a year to operate on the OCS. The desire to allocate costs and manage risks has resulted in complex business relationships, agreements, and financing mechanisms. Consider also that offshore operations are often subject to more than 40 federal and state statutes and thousands of regulations. These legal complexities can be rewarding for lawyers who know the OCS game; however, they can be intimidating for inexperienced lawyers.
I vividly remember the first time one of my partners called me into her office to discuss my assisting a client with offshore interests. She asked me whether a U.S. corporation wholly owned by a foreign LLC could be qualified as a DO on the GOM OCS—and if so, whether the entity has to file a special DOO. Exactly like that. I didn’t know what a DOO, a GOM, or an OCS was. I went straight to Google.
My hope is that this piece, while far from comprehensive, is a useful introduction to those of you with minimal exposure to offshore oil and gas law. You may still need Google, but here are a few things I can share with you that I wish I knew when I started out.