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The U.S. federal agencies regulating offshore leases are considering granting royalty relief to new oil and gas drilling in shallow waters in the Gulf of Mexico, in a bid to avoid the stranding of what they estimate could be US$20 billion worth of American oil and gas resources.
In new research this week, the Bureau of Safety and Environmental Enforcement (BSEE) and the Bureau of Ocean Energy Management (BOEM) recommend a discount royalty rate for what they propose should be the Gulf of Mexico Shallow Water Province of water depths fewer than 200 meters.
As development in the Gulf of Mexico has moved onshore or into deepwater in the past two decades, the number of wells drilled has slumped by 89 percent over the last decade, the agencies say. Some 100 platforms are being removed every year and no new platforms are being installed.
“If this trend continues, the lack of development will potentially strand 179 million barrels of oil and 4,567 billion cubic feet of natural gas that have an estimated worth of $20 billion,” BOEM and BSEE said.
The research essentially lays the foundation for two actions that could incentivize offshore oil and gas activity in the shallow waters of the Gulf of Mexico. Those actions are: BOEM to publish updated discount rates for the shallow and deepwater provinces in the Gulf, and the verification that “BSEE has authority to consider applications for royalty relief on a ‘per project’ basis,” BSEE said.
The potential royalty relief in the Shallow Water Province will only apply to new wells and production in the region, the federal agencies say, noting that their research is in support of the Trump Administration’s plans to boost offshore oil and gas development.
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“Lowering this barrier encourages production which increases revenue for taxpayers and the number of jobs for Louisiana workers,” Louisiana Senator Bill Cassidy, M.D., said.
The intention to encourage new oil drilling drew criticism from the Center for American Progress, whose senior director of environmental strategy and communications, Matt Lee-Ashley, told AP:
“These companies signed a contract with taxpayers and this is giving them a way out, to pay less than what is owed to taxpayers.”
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.