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Oil Company Asks for U.S. Royalty Relief Amid Price Collapse

An unnamed oil company active in the offshore segment of the industry has asked the Department of the Interior for royalty payment relief because of the oil price collapse, Reuters reported, citing the department spokesman, Nicholas Goodwin.

The report follows a call from legislators from the Gulf Coast states on the Department of the Interior to reduce the royalty rates offshore oil companies have to pay to the government amid the crisis.

“Such an action in the short term will help mitigate a price war that is sinking prices and decreasing production,” the legislators said in a letter to Interior Secretary David Bernhardt.

The offshore royalty rate for water depths of less than 200 meters stands at 12.5 percent, according to the Bureau of Ocean Energy Management. For all depths above 200 meters, the royalty rate is 18.75 percent. The shallow water rate was reduced in 2017 as part of the Trump administration’s energy industry support agenda.

The Department is ready to provide royalty relief to companies that need it, Louisiana Senator Bill Cassidy told Reuters. 

“He promised to quickly process targeted royalty relief on the outer continental shelf using existing law,” Cassidy said.

The U.S. oil industry has been among the harder-hit by the oil price collapse, and the royalty relief application suggests it is not just shale players that are affected by the low oil prices.

Crude oil prices have fallen by more than 50 percent since the start of the year, with some U.S. grades in single-digit territory. As a result, production has begun falling, too. Last week, production fell by 600,000 bpd to 12.4 million bpd, according to the latest weekly petroleum status report released by the Energy Information Administration.

Production is expected to fall further, with the EIA estimating over this year and next, the daily average of the U.S. could shed 2 million bpd, with the figure for this year seen at 11.8 million bpd.

By Irina Slav for Oilprice.com

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