Deepwater royalties

Some companies have been urging the Clinton administration, as part of its forthcoming program to increase U.S. oil and gas production, to defer royalties for deepwater fields.

Testifying at two congressional hearings last week on the subject, administration officials opposed royalty relief for any field in less than 400 m of water.

Congressional bills

Congressmen have filed bills in both houses to permit oil companies to recover their capital investment costs at new oil and gas fields in more than 200 m of water in the central and western Gulf of Mexico before paying federal royalty.

The author of the Senate bill, Bennett Johnston (D-La.) complained last week, "This administration has thus far been long on rhetoric and short an concrete proposals. It's all well and good to say how much you favor increased use of natural gas. But it is quite another thing to say increased use of natural gas requires increased production."

William White, deputy energy secretary, hinted the administration's program to boost oil production might contain relief for "cats and dogs leases" where the risks or costs are extraordinarily high. He predicted the administration will disclose the program within a month.

At the House hearing, MMS Director Tom Fry said his agency already gives deepwater tracts a royalty discount. New leases in more than 400 m of water carry a 12% royalty, compared with the16.6% royalty on shallower offshore tracts.

Fry said MMS analyzed 30 discoveries in water depths of more than 200 m in the Gulf of Mexico and found the pending legislation would affect oil companies' decisions on whether to develop only two of the fields. Both of those prospects are in more than 400 m.

He said, "The estimated revenue gains from bringing those two fields into production would be more than offset by royalties given up from other fields that would have been produced even in the absence of the incentive. This is estimated to be a net loss of $1.9 billion, in 1993 dollars, in royalty collections."

Fry said the Interior Department's solicitor's office is studying whether the department can grant royalty reductions to leases not yet on production, and a bill from Congress on the subject would be helpful.

Floor price

Johnston also argued for a floor price for imported oil, but White offered little hope for that. He said the administration will need "broad based" support for such a proposal.

Robert Armstrong, assistant interior secretary for land and minerals management, said the Clinton team is not enamored about congressional spending moratoriums that block offshore lease sales.

He said when the current moratoriums expire in a year "I think we will want to change them." But he added, "I do not consider it to be an easy sell."