Oil group urges royalty relief for medium-water fields

The Domestic Petroleum Council has urged the US Minerals Management Service to expand its proposed offshore royalty relief rules to provide more aid for marginal Gulf of Mexico fields in 200 to 800 m of water.

The Domestic Petroleum Council, representing medium to large independent US producers, is warning that the US Minerals Management Service's proposed offshore royalty relief rules fall short of industry's needs.

MMS announced the rules Nov. 29 (OGJ, Newsletter, Dec. 11, 2000). They would continue royalty relief under the 1995 Deepwater Royalty Relief Act for marginal Gulf of Mexico fields, but not those in 200 to 800 m of water.

DPC said relief should be provided in that depth range, although "We are pleased that MMS is moving to encourage deep natural gas activity in shallower Gulf waters and below salt formations. Applying royalty incentives on a lease basis and certain other proposed changes regarding discretionary 4oylaty relief are positive steps."

The association noted MMS explained that automatic royalty relief is not justified in 200-800 m of water because there is a sizeable inventory of unexplored acreage and the infrastructure in those depths is developed sufficiently to make it economic to produce in those water.

But DPC said producers funded a study that concluded there are many more small and medium sized fields in 200-800 m than MMS assumes.

William Whitsitt, DPC president, said, "Consequently, we believe the proposed royalty changes would eliminate existing incentives for many marginal fields with resulting reduced leasing, exploration, and production in deep water as more prospects are evaluated as uneconomic."

DPC recommended that MMS and industry should jointly undertake additional modeling or other efforts to narrow their differences of opinion.

Whitsitt said, "In the meantime, we believe that royalty suspension provisions similar to those of the 1995 act should be continued, with addition of price ceiling provisions."

And DPC said MMS should keep in mind the investments industry must make to maintain domestic oil and gas production, and whether the MMS offshore program is competitive with those in other nations.

"It is not readily apparent how, or whether, these considerations were taken into account in formulating the Nov. 29 proposal," Whitsitt said.

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