Interior Raises Royalty Rate for New Gulf Leases

The Interior Department said this week that it is boosting the royalty rate for new oil and gas leases in the Gulf of Mexico, the second increase in less than a year.

Interior's Minerals Management Service, which oversees offshore leasing, said the rate for leases in two March 2008 gulf sales will be 18.75 percent. Gary Strasburg, an MMS spokesman, said the rate would apply to other future gulf sales as well.

The move comes roughly nine months after MMS announced that the royalty rate for new deepwater leases would be increased from 12.5 percent to 16.7 percent.

Strasburg said the changes followed an analysis of royalty rates requested by President Bush. "The analysis determined that an increase in royalty rates on new Gulf of Mexico offshore federal oil and gas leases would benefit the American public through increased federal revenue," he said, noting the increase is expected to boost revenue from the two March lease sales by about $4.3 billion over 30 years. It will have a "slight" downward effect on production initially but will even out over time, he added.

The change comes at a time of record high oil prices and as other governments are also increasing their take from oil and gas production. The government of Alberta last week announced higher royalties on oil, gas and oil sands (Greenwire, Oct. 26)

A Government Accountability Office report released earlier this year found that the U.S. government takes a smaller cut of oil and gas revenues than many other energy producing nations (Greenwire, June 1).

Industry group protests

Nonetheless, the new rate increase drew fire from a major industry group. "We consider this a disincentive to producing more supply," said American Petroleum Institute spokesman Bill Bush. "This is not a time to be increasing royalty rates when we should be increasing oil and gas production to meet growing demand."

The MMS announcement was tucked into notices announcing central and eastern gulf lease sales that will be held March 19. Sale 206 will offer about 5,000 central gulf blocks spanning 28.5 million acres off Louisiana, Mississippi and Alabama, MMS said. It includes blocks that did not receive bids in the lucrative central gulf lease sale earlier this month, as well as others that were not offered, Strasburg said.

The second sale -- sale 224 -- planned for March 19, comprises more than a half-million acres in the eastern gulf. MMS is required to offer this acreage under legislation Congress approved in 2006 that opened more than 8 million gulf acres to new leasing (Greenwire, Dec. 12, 2006.).

Under provisions in the bill, Alabama, Mississippi, Louisiana and Texas will share 37.5 percent of the revenues from leases in this sale.

Copyright 2007 E&E Daily. All Rights Reserved. Visit E&E Daily for a free trial.