By Canadian Press

Feds: Royalty exemption for new shallow-water Gulf wells

Nov 21, 2019 | 1:05 PM

NEW ORLEANS — The federal agencies that make and enforce offshore oil and gas leases say they’ll encourage new wells in shallow Gulf of Mexico waters by allowing some reduced-royalty or even royalty-free production if owners can prove they need it.

Some $20 billion worth of oil and gas may go untapped without changes described in a report issued Tuesday, according to the heads of the Bureau of Ocean Energy Management, which makes the leases, and the Bureau of Safety and Enforcement.

The number of wells drilled in shallow water has fallen 89 per cent over the past 10 years, “and approximately 100 platforms a year are being removed with no new platforms being installed,” a joint press release said.

The Center for American Progress and an environmental group, the Center for Biological Diversity, both called the changes a giveaway to the petroleum industry.

“These companies signed a contract with taxpayers and this is giving them a way out, to pay less than what is owed to taxpayers,” said Matt Lee-Ashley, senior director of environmental strategy and communications at the Center for American Progress.

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Recent shallow-water leases have royalties of 12.5%, the legal minimum, with an 18.75% royalty for deepwater leases — those in more than 200 metres (656 feet) of water. Those signed earlier, in either area, can have either of those rates or 16.67%.

The agencies are providing a new, bigger potential break for shallow-water wells. In addition, the enforcement bureau can now consider requests for a break on royalties on new drilling rather than only on an entire lease. The rules take effect immediately, safety and enforcement spokeswoman Eileen Angelico said.

She said “specialty royalty relief” is nothing new but has been a little-used program. She wouldn’t speculate on future use.

The big change is a larger interest rate, called a discount rate, used to compute the value of expected income and spending for shallow-water wells. The previous rate was 15% for all wells; the new 25% rate applies only to those in shallow water.

Republican U.S. Sen. Bill Cassidy of Louisiana had asked Interior Secretary David Bernhardt in early September for royalty relief and other policies to encourage shallow-water drilling.

“High royalty rates prevent as much as $20 billion in shallow water energy projects,” Cassidy said in an emailed statement Thursday. “Lowering this barrier encourages production which increases revenue for taxpayers and the number of jobs for Louisiana workers.”

Janet McConnaughey, The Associated Press