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US lowers shallow water royalty rates

Written by  OE Staff Monday, 10 July 2017 10:06

Upon completing the analysis of royalty rates for offshore oil and gas leases, the US Bureau of Ocean Energy Management (BOEM) has decided to lower royalty rates for the Gulf of Mexico Lease Sale 249.

BOEM has set the royalty rate at 12.5% for leases located in water depths less than 200m in the proposed Gulf of Mexico (GOM) Sale 249.

The new rate is lower than the proposed 18.75% royalty rate for shallow water leases that was published in the Proposed Notice of Sale, and is consistent with the Federal onshore oil and gas lease royalty rate of 12.5%.

According to BOEM, the purpose of this 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. The royalty rate in 200m of water and deeper will remain at 18.75% as in the Proposed Notice of Sale.

BOEM says it made this decision after careful consideration of market conditions, available resources, leasing, drilling, and production trends, along with comparable international fiscal systems. In particular, hydrocarbon price conditions and the marginal nature of remaining GoM shelf resources suggest a royalty rate reduction is an appropriate and timely action. The shallow water royalty rate reduction targets the GOM shelf where exploration, development, and production are in decline and where critical infrastructure already exists.

If BOEM moves forward with the sale, the royalty rates and other lease terms related to GoM Sale 249 will be formally announced in the Final Notice of Sale at least 30 days prior to the sale date. The sale date is currently scheduled for 16 August 2017.

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 3 nm offshore out to the outer limit of the US’ jurisdiction over the Outer Continental Shelf (OCS) in water depths ranging from 3m to more than 3400m.

Following BOEM’s decision, National Ocean Industries Association (NOIA) President Randall Luthi applauded BOEM’s decision.

“NOIA applauds the Bureau of Ocean Energy Management’s decision to set the royalty rate at 12.5% for shallow water leases in next month’s Gulf of Mexico (GOM) oil and gas lease sale. 

“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 US taxpayer, because the alternative would be fewer leases sold and fewer resources developed.  A 12.5% royalty rate is far better than a 0% royalty rate, which is what the government receives if there are no bids.”

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