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Washington Won’t Cut Offshore Royalty Rates

The federal government will keep royalty rates for offshore oil production despite a push from the industry to lower the payments burden amid the covid-19 crisis, a Louisiana senator told Reuters.

“These are the cards that we’re dealt,” Republican Senator Bill Cassidy said. “The Secretary of Interior does not feel like he has the ability to go beyond normal process.”

Earlier this month, reports emerged that one oil company active in offshore oil production had approached the Department of the Interior with a request for lower royalty rates in response to the low oil price environment.

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 BOEM reduced the shallow water rate in 2017 as part of the Trump administration’s energy industry support agenda.

Senator Cassidy was one of the authors of the letter to the DoI in early April. At the time, he expected that the government would provide the needed help. But the only remedy available to oil companies will be applying for relief under a Bureau of Safety and Environmental Enforcement program that the industry has previously criticized as taking too much effort and time.

Meanwhile, the industry across the country is shutting wells and laying off workers. As the New York Times’ Clifford Krauss reported this week, refineries are idling, wells are shutting in, and drillers are being let go with early termination fees.

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By Irina Slav for Oilprice.com

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