Higher oil prices probably will result in more U.S. Outer Continental Shelf lease sales being held under the next 5 year program, says Barry Williamson, director of the Minerals Management Service.
When the current 5 year plan runs its course in 1992, probably only 15 of the 39 scheduled sales will have been held.
Williamson told Oil & Gas Journal the next 5 year plan, which will be unveiled in late November or early December, will call for 15-40 sales, but fewer of them will be canceled. The sale schedule will be subject to revision, but Williamson anticipates it will be more reliable than the last plan.
"A WELL BALANCED PLAN"
"This next 5 year plan will be more aggressive than you think it might be," he said. "it won't offer as many sales, but it will be a nice size. When you look at the economics, politics, and environmental issues involved, it will be a fair, well balanced plan."
The Persian Gulf crisis has doubled oil prices, and may revitalize the economics of offshore exploration. In response, Williamson will try to make the next 5 year plan flexible enough to respond to higher prices.
There will be few sales off the East Coast and probably only one off California, but Williamson said industry will "have a lot of opportunities in the Gulf of Mexico and off Alaska."
The Alaska sales in particular will focus on attractive basins "without offering the whole ocean" for lease. That will limit conflicts over sales.
To encourage more U.S. petroleum production, MMS is examining the regulatory structure offshore and onshore, looking for disincentives and government red tape that hinder operations.
For example, last week MMS negotiated a royalty rate reduction, its first offshore, to continue production from Marathon Oil Co.'s Vermilion Block 239 South gas field off Louisiana.
Williamson said, "Marathon has been producing this lease for more than 10 years and has paid the federal government more than $60 million in royalties at a royalty rate of about 73%. By reducing the royalty to 25% it becomes economic for Marathon to complete production of resources at this site."
Marathon agreed to spend $4 million to develop new reservoirs and increase production from the existing platform by 19 bcf of gas, resulting in royalties of $10 million during the next 13 years. The deal will be reviewed every 3 years.
REVENUE SHARING
On other fronts, MMS is drafting for the next Congress to consider a proposal that would share OCS revenues with coastal communities.
Williamson said economic models of the "impact assistance" bill suggest there's a good chance this won't be a cost to the federal government but will have economic benefits because it will bring on new production.
Williamson also wants U.S. offshore operators to improve their technology and share it more broadly.
"For instance," he said, "I'm a strong believer that subsea technologies need to be given a second look. The economics are now better than they were a year ago or 3 years ago."
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