U.S. Drops Shallow Offshore Royalty Rates

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By The Maritime Executive 2017-07-09 02:38:05

The U.S. Bureau of Ocean Energy Management (BOEM) has dropped its royalty rates for shallow water oil and gas leases in an upcoming sale.

The BOEM has set the royalty rate at 12.5 percent for leases located in water depths less than 200 meters in the proposed Gulf of Mexico Sale 249 scheduled for August 16. This is lower than the proposed 18.75 percent royalty rate published in the Proposed Notice of Sale, and is consistent with the Federal onshore oil and gas lease royalty rate of 12.5 percent. The royalty rate in 200 meters of water and deeper will remain at 18.75 percent as in the Proposed Notice of Sale.

The purpose of the change is to adjust the royalty rate to reflect recent market conditions, thereby encouraging competition and continuing to receive a fair and equitable return on oil and gas resources, said BOEM in a statement. 

GOM Sale 249 is the first scheduled lease sale in the 2017-2022 Outer Continental Shelf Oil and Gas Leasing Program, and is also the first scheduled Gulf of Mexico region-wide sale that encompasses all available acreage in the Western, Central, and Eastern planning areas. The unleased blocks are located between three nautical miles offshore out to the outer limit of the United States' jurisdiction over the Outer Continental Shelf in water depths ranging from three meters to more than 3,400 meters.

National Ocean Industries Association (NOIA) President Randall Luthi has applauded the move. “The Trump Administration continues to keep its promises regarding the promotion and active encouragement of an ‘all the above’ energy policy. BOEM’s decision to lower the shallow water royalty rate for the August sale will provide a welcome financial incentive to hard hit operators on the GOM shelf. Extended low commodity prices and increased regulatory burden over the past few years have rendered exploration in shallow waters nearly extinct.  

“Operators can now calculate a lower royalty rate as they prepare their bids, and we think this will generate more interest in the upcoming sale. The move is a good deal for the U.S. taxpayer, because the alternative would be fewer leases sold and fewer resources developed. A 12.5 percent royalty rate is far better than a zero percent royalty rate, which is what the government receives if there are no bids.”

BOEM is also analyzing a price-based royalty system which would provide an incentive to lessees through lower royalty rates in times of lower oil prices, while also ensuring the Federal government receives a greater return for Outer Continental Shelf resources when prices are high. A price-based royalty system will not be in place for GOM Sale 249.