U.S. Approves Deepwater Royalty Relief

Gale Norton, Secretary of the Interior, announced that oil and gas companies drilling in Gulf of Mexico deepwater will be given royalty reductions. Royalty relief will apply to tracts leased in 2001 and beyond in water depths of at least 650 feet, and allows some operators to apply for discretionary relief and shorten the time required to prepare and evaluate applications. The relief will take on February 14 for oil and gas companies that can demonstrate that drilling in deep waters would be a financial burden and that a reduction in royalty payments would be necessary to strengthen the economic viability of oil projects. The current royalty fee paid by oil and gas companies to the government ranges from 12.5% to 16.66% on the value of each barrel of oil.

Under the policy, oil and gas companies drilling in waters between 650 feet to 2,625 feet deep would not have to make royalty payments on the first 10% of oil expected to be recovered from a specific field. For leases in water 2,625 feet to 5,250, royalty relief would be given on the first nine million barrels and another 10% on the field's recoverable crude. For waters deeper than 5,250 feet, the first 12 million barrels plus 10% of the field's recoverable oil reserves would be exempt from royalties. The reprieve applies to leases in the western and central Gulf of Mexico, and does not apply to leases in the eastern Gulf of Mexico, where drilling is currently prohibited.