The outgoing Bush administration is proceeding with plans to redefine deepwater for U.S. Outer Continental Shelf royalty purposes.
The redefinition to 400 m of water will effectively cut the Minerals Management Service's royalty rate on production in 200-400 m of water to 12.5% from 16% (OGJ, Nov. 2, p. 38).
The agency currently collects a 16% royalty on production from water depths of 200-400 m of water and 12.5% on production in water deeper than 400 m.
MMS said the change will prompt more offshore development because costs increase dramatically beyond the 200 m water depth.
Scott Sewell, MMS director, said Interior Sec. Manuel Lujan will approve the change before yearend.
Sewell said the change is noncontroversial and doubts the incoming Clinton administration would object to it.
He stressed, "We're not trying to ram anything through or leave any land mines behind."
PREPARING FOR TRANSITION
MMS is preparing for the transition by summarizing OCS issues the new administration will face and decisions it should make in the first 6 months of 1993, including whether to proceed with plans for an East Coast offshore lease sale.
Sewell is optimistic about the future political climate for offshore U.S. exploration.
"I'm encouraged by the Clinton administration's call for increased natural gas use, because the only place to turn for major new reserves is offshore. There's plenty of gas reserves out there-we've just locked them up."
And he predicted as gas demand and prices inevitably increase the next few years, "There's going to be an active and spirited debate in the Clinton administration" on offshore leasing.
He said congressional opposition to lease sales will evaporate "the first time energy prices rise."
Most of all, Sewell said the oil industry needs stability in the leasing program. "Offshore leasing is not supposed to be a yo-yo. Short term swings can seriously injure a major industry that requires long lead times."
SEWELL LOOKS BACK
Sewell said his major challenge at MMS was responding to issues arising from the Exxon Valdez accident, even though it was a transportation accident and not an offshore drilling mishap.
He said his major achievement was reorganizing MMS, an agency that "grew without rhyme or reason" in the early 1980s in response to federal royalty collection problems.
The reshuffling affected most 1,200 MMS employees, closing some offices, expanding others, and creating new functions.
Sewell said the next director should be "somebody who has some experience in the oil and gas industry or has a feel for the agency" since MMS decisions have a way of stirring deep political controversy.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
