MMS outlines deepwater royalty relief program

The US Minerals Management Service Wednesday announced a proposed rule to continue, but limit, deepwater Gulf of Mexico royalty relief. The agency proposes to provide relief, as needed, for new leases issued after November 2000.

Sep 13th, 2000


Washington, DC�The US Minerals Management Service Wednesday announced a proposed rule to continue, but limit, deepwater Gulf of Mexico royalty relief.

The Deepwater Royalty Relief Act�s mandatory requirement for royalty suspensions expires Nov. 28, but the law allows MMS to continue the suspensions, if warranted. The agency proposes to provide relief, as needed, for new leases issued after November 2000.

In its presale notices, MMS would specify automatic royalty suspension volumes by water depths, along with applicable oil and gas price thresholds below which relief would apply. Once established, the royalty suspension volumes would be in place for about 3 years.

Royalty relief, if provided, will be issued to individual leases�not fields�and the volumes would not be affected by the status of the fields to which the leases may be assigned.

MMS said the new leases would be issued with an extended �rental fee" provision that applies during the period of royalty suspension. It will establish a process to let lessees apply for additional royalty relief on new leases when they think the automatic royalty suspension is insufficient for development.

MMS Director Walt Rosenbusch said, �These new regulations will provide the framework to ensure the continuation of royalty relief that may be needed as an incentive in the deepwater areas of the Gulf of Mexico.

�The ability to continue some form of selective royalty relief is important for maintaining the momentum created by the Deepwater Royalty Relief Act, avoiding abrupt changes to our ongoing leasing system, and stimulating technological advances and expansion of infrastructure into deeper waters.�

Rosenbusch said, �Some may question the need to continue leasing incentives [because] oil and gas prices are now unusually high. However, given that oil and gas prices are highly volatile, we think it is prudent to have the means or the framework established in regulations that will enable us to offer incentives that are both targeted and flexible. This will help ensure that deepwater development can move forward in all market conditions.�

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