No Blanket Royalty Waiver for U.S. Offshore Oil Industry

Nichola Groom
Thursday, April 23, 2020

The Trump administration will not make a broad cut to the royalty rate oil and gas companies must pay on their offshore drilling operations despite a historic oil price collapse that has put the industry in crisis, a Gulf Coast lawmaker briefed on the matter told Reuters on Wednesday.

The administration's decision scratches off one of the top requests made by drillers as they seek government help to survive a record downturn in global energy demand brought on by the fallout of the COVID-19 pandemic caused by the novel coronavirus.

Republican Senator Bill Cassidy of Louisiana said U.S. Interior Secretary David Bernhardt told him that drillers seeking royalty relief must apply individually under existing waiver programs, and that a blanket waiver for the whole industry was not legally available at the moment.

The current royalty rate on new offshore leases requires drillers to pay 18.75% on the value of oil produced in deep water, and 12.5% for shallow water.

"These are the cards that we're dealt," Cassidy said. "The Secretary of Interior does not feel like he has the ability to go beyond normal process."

Interior officials did not immediately respond to a request for comment on Wednesday.

Cassidy is one of several U.S. Gulf Coast lawmakers who has sought royalty rate cuts to counter the impact of the coronavirus outbreak, which has gutted demand for fuel and caused U.S. crude futures to plunge into negative territory this week for the first time in history.

The U.S. Department of the Interior thus far has directed struggling producers to apply for relief using an existing system under the Bureau of Safety and Environmental Enforcement. That case-by-case process has been criticized by the industry as onerous and lengthy.

Cassidy said he had heard from one producer who had been seeking royalty relief for two years.

Bernhardt assured Cassidy that he would "personally" see that applications were processed without delays, Cassidy said.

Cassidy said he hopes that means the process would take no longer than two months. He added he would like to see a provisional approval process under which royalties could sit in an escrow account and be returned to a company if its application is approved.

Cassidy said he did not know how many companies so far had initiated the process of royalty relief. As of last week, an Interior spokesman said it had received just one request.

Interior said last week that the BSEE was reviewing and updating its processes, but did not give specifics. 

(Reporting by Nichola Groom; editing by Diane Craft)

Categories: Energy Deepwater Drilling Industry News Activity North America Gulf of Mexico USA

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