Zinke decides not to lower royalty rates

US Secretary of the Interior Ryan Zinke has announced that the Department of the Interior will not lower royalty rates for future offshore oil and gas lease sales.

Offshore staff

WASHINGTON, D.C.US Secretary of the Interior Ryan Zinke has announced that the Department of the Interior (DoI) will not lower royalty rates for future offshore oil and gas lease sales.

On Feb. 28, theRoyalty Policy Committee (RPC) made its initial recommendations, including one to set a royalty rate of 12.5% on all outer continental shelf lease sales at all water depths through 2024.

Since then, an improving economy, federal tax reforms, higher energy prices, and greater regulatory certainty have led to positive market conditions, prompting Zinke to keep theroyalty rate in water depths more than 200 m (656 ft) at 18.75%.

“The pilot light of American energy has been re-lit byPresident Trump, and the president’s energy dominance strategy is paying off,” said Secretary Zinke. “Right now, we can maintain higher royalties from our offshore waters without compromising the record production and record exports our nation is experiencing. The administration is grateful for the committee’s hard work on these significant energy issues.”

Last fall, the department announced the fiscal terms used for future offshore lease sales. These terms included a 12.5% royalty rate for leases in less than 200 m of water depth, and a royalty rate of 18.75% for all other leases issued, beginning with the August 2017 lease sale. Analogous to the Federal Reserve System – when the market or other conditions dictate, the department has the statutory authority to adjust royalty rates for upcoming sales in accordance with federal law.

In response to Zinke’s decision, NOIA Vice President of Communications and Industry Affairs Nicolette Nye said: “… the study cited in the RPC’s recommendations to the secretary was based on data that is several years old, and some factors may have changed, such as increased competition from other offshore basins, including our neighbors to the north and south (Canada, Mexico, and Brazil).

“NOIA has little doubt that increased study will show that continued competition and a challenging economic environment may further reinforce the notion that the US needs to re-visit the royalty issue in the months and years to come.

“The results of recent sales on theMexican side of the Gulf of Mexico are a significant indicator that the US cannot continue to offer the same acreage at the same terms on the US side of the Gulf and expect the offshore industry to find the acreage appealing enough to be the automatic revenue generator it has historically been. NOIA continues to believe that adjusting royalty rates, including for the deepwater Gulf of Mexico, can encourage new investment in the exploration and development of offshore oil and natural gas resources.”

04/17/2018

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