WASHINGTON, D.C.– The Bureau of Ocean Energy Management (BOEM) has set the royalty rate at 12.5% for leases located in water depths less than 200 m (656 ft) in the proposed Gulf of Mexico Sale 249.
This is lower than the proposed 18.75% royalty rate for shallow-water leases that it published in the proposed notice of sale, and is consistent with the federal onshore oil and gas lease royalty rate of 12.5%.
The bureau said the reduction reflects recent market conditions and the marginal nature of remaining GoM shelf resources. The royalty rate of leases in water depths more than 200 m will remain at 18.75% as in the proposed notice of sale.
Lease Sale 249 is currently scheduled for Aug. 16, 2017. It is the first scheduled lease sale in the 2017-2022 outer continental shelf oil and gas leasing program, and is also the first scheduledGulf 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 nautical miles offshore out to the outer limit of the US’ jurisdiction over the outer continental shelf (OCS) in water depths ranging from 3 m (10 ft) to more than 3,400 m (11,155 ft).
National Ocean Industries Association President Randall Luthi applauded the royalty rate reduction.
“This common-sense decision makes the royalty rate for shallow-water leases consistent with the federal onshore royalty rate and demonstrates genuine interest in attracting operators to the GoM shelf,” Luthi said. “TheTrump administration continues to keep its promises regarding the promotion and active encouragement of an ‘all the above’ energy policy.”
He continued: “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.”
BOEM also announced that it is analyzing a price-based royalty system and will be engaging stakeholders on this concept later this year. Its concept of a price-based royalty system 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 OCS resources when prices are high.