Discounts Recommended to Avoid Stranding GoM Shallow Water Resources
New research released by the U.S. Bureau of Safety and Environmental Enforcement (BSEE) and Bureau of Ocean Energy Management (BOEM) indicates the need to define the Gulf of Mexico Shallow Water Province (water depth less than 200 meters) as a distinct province to avoid stranding more than $20 billion of the nation’s oil and natural gas resources.
The Shallow Water Province is a historically energy-rich area that now primarily serves as a natural gas province, accounting for 33 percent of the Gulf’s natural gas production and just over 10 percent of its oil production.
Production and infrastructure investment used to be substantially higher in the Shallow Water Province, but over the last 20 years, development has moved onshore or to deepwater operations. The number of wells drilled has decreased 89 percent over the last 10 years, and approximately 100 platforms a year are being removed with no new platforms 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.
The joint research report, “Gulf of Mexico Data and Analysis/ Leasing, Drilling and Production, Gulf of Mexico Shallow Water Potential Stranded Assets,” recommends using an updated discount rate for the two distinct provinces. The updated discounted rate for the Shallow Water Province will apply to special case royalty relief applications and will only be applicable for new wells and production in the region.
According to BOEM, for every million-dollar investment in shallow water, the total economic impact, including the reinvestment of state and local taxes, yields approximately $1.7 to $2 million in additional economic activity.
National Ocean Industries Association (NOIA) President Erik G. Milito said: “The Federal government should be an advocate for American-produced energy, as the far-too-common alternative is the outsourcing of energy production to foreign governments that do not share American values. Offshore oil and gas production will remain a global growth area for decades to come, and we should embrace policies that ensure U.S. offshore production remains a vital source of the energy that builds our modern lives.”
The report is available here.