The Department of the Interior has warned all bidders for oil and gas leases in federal waters in the Gulf of Mexico to consider the potential impact of the Committee on Foreign Investment in the United States (“CFIUS”) prior to bidding. The warning was issued in connection with the upcoming oil and gas lease sale by the Department of the Interior’s Bureau of Ocean Energy Management (“BOEM”). In Lease Sale 254, scheduled for March 18, 2020, BOEM will offer over 78 million acres in federal waters in the Gulf of Mexico for lease. Lease Sale 254 is the sixth of ten region-wide sales under the 2017-2022 Outer Continental Shelf Oil and Gas Leasing Program. BOEM estimates that the Gulf of Mexico’s Outer Continental Shelf contains about 48 billion barrels of undiscovered, recoverable oil and 141 trillion cubic feet of undiscovered, recoverable gas.1
Lease Sale 254 is the first such sale to occur after new regulations went into effect expanding the jurisdiction of CFIUS to reach pure real estate transactions involving foreign persons and implementing other significant reforms to CFIUS’s authority and process for reviewing foreign investments in U.S. businesses.2 The new CFIUS rules became effective on February 13, 2020.
Under the new real estate rule, CFIUS has authority to review transactions involving the purchase or lease by, or concession to, foreign persons (including entities subject to foreign control by minority investors) of certain real estate in the United States. For a transaction to be “covered” by the rule, it must afford a foreign person specified property rights within certain airports and maritime ports, or near sensitive U.S. government facilities. Included on the list of sensitive facilities are 23 offshore military operating areas and range complexes, including seven in the Gulf of Mexico. Offshore lessees are familiar with military areas, as BOEM lease sales include stipulations about operational issues in certain military areas. The listed offshore operating areas and ranges are covered by the new CFIUS real estate rule to the extent they are located within the territorial sea of the United States.
Leases by foreign persons near military areas may present national security concerns and therefore are subject to review by CFIUS. As noted by BOEM, CFIUS is authorized to review covered real estate transactions and to modify, suspend, or prohibit transactions to mitigate any risk to national security.
In addition, certain transactions involving offshore oil and gas operations fall within CFIUS’s traditional jurisdiction to review foreign investments in U.S. businesses. In addition to the new authority under the real estate rule, CFIUS has long had authority to review any transaction that will result in “foreign control” of a U.S. business. CFIUS has taken a particular interest in operations in the Gulf of Mexico in other cases, and companies active in the area or foreign-owned or controlled companies that are considering investing in the area should evaluate whether a CFIUS filing is needed. CFIUS has made clear that it will continue to review such transactions and that its authority to review foreign investments “is not limited in any way by the sites or distances” set out in the new real estate rule.3
Parties who file a transaction with CFIUS and obtain approval receive “safe harbor,” and an approved transaction cannot be reopened by CFIUS unless there were material omissions in the filing or commitments made to CFIUS are violated. For transactions that are not filed with CFIUS, there is no statute of limitations on when CFIUS can open a review. In some cases, CFIUS has identified concerns years after the transactions closed and has forced divestitures, and even has required the removal of capital improvements made to properties post-closing.
1 Press Release, U.S. Department of the Interior, Interior Announces Region-Wide Oil and Gas Lease Sale for Gulf of Mexico (Feb. 11, 2020), https://www.doi.gov/pressreleases/interior-announces-region-wide-oil-and-gas-lease-sale-gulf-mexico-2.
2 The final rule on investments by foreign persons is found at 31 C.F.R. part 800. The final rule on CFIUS review of real estate transactions is found at 31 C.F.R. part 802.
3 Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States, 85 Fed. Reg. 3158, 3160 (Jan. 17. 2020) (discussion of the rule).
