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Texas Lawmaker Calls For Oil & Gas Royalty Cuts

Oil and gas

As crashing oil prices hit U.S. oil and gas companies, one Texas lawmaker is asking the Department of the Interior to reduce the royalties that firms pay for oil and gas production in the Gulf of Mexico.  

“We do not believe the American energy sector needs a bailout from Congress. However the Department of Interior has existing authority to temporarily reduce or eliminate royalties set forth in the leases in the Western and Central planning areas of the Gulf of Mexico,” Congressman Dan Crenshaw of Texas wrote in a letter to the Secretary of the Interior, David Bernhardt, as carried by Houston Chronicle.

“We urge you to consider the viability of a temporary reduction in royalties,” Congressman Crenshaw wrote.

Reducing royalty payments for companies could help some firms reduce the number of layoffs in Texas and the Gulf Coast, he argues.

In the wake of the crashing oil prices, every U.S. energy firm, including supermajor Exxon, plans significant cost cuts and capital expenditure reductions to try to adapt to the new reality of oil in the $20s.

Texas is also weighing whether to curtail oil production in the heart of the U.S. oil industry, in a first such move in decades, the Wall Street Journal reported on Thursday, quoting sources with knowledge of the deliberations.

Related: Oil Prices Retreat After Massive Rally

Earlier this month, U.S. President Donald Trump directed the U.S. Department of Energy (DOE) to begin solicitation for buying 77 million barrels of oil from American producers to remove some of the overhang on the market, fill the Strategic Petroleum Reserve (SPR) to its maximum capacity with the cheapest oil in years, and help oil producers.    

DOE launched on Thursday the process to buy an initial volume of 30 million barrels of oil, mostly from small to midsize producers, in a bid to provide relief to the American energy industry.

Apart from buying for the SPR, the Trump Administration is considering other relief measures for U.S. oil producers, including tax relief.

According to Bloomberg, the Administration is also weighing the idea to cut royalty rates for oil and gas production on federal land, but this idea will likely meet opposition not only from Democrats, but also from some Republicans who have said that federal royalty rates are too low.

By Tsvetana Paraskova for Oilprice.com

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