API: Govt Collects $3B from Deepwater Leases

Two new studies commissioned by the American Petroleum Institute show that oil and natural gas companies paid the U.S. government more than $3 billion for leases under the 1995 Deep Water Royalty Relief Act, spent $37 billion to develop them, paid billions in production-related taxes, created thousands of jobs and pumped billions into the economy.

The goal of the 1995 Act was to encourage oil and natural gas production in risky and prohibitively expensive Gulf of Mexico deep water areas by providing temporary relief from royalties. It has successfully enhanced our energy security while creating jobs and spurring economic activity. "While this Act was primarily intended to encourage oil production at a time when the nation was in desperate need of new oil supplies, these studies show that they were also a boon to U.S. taxpayers and a great stimulus to the nation’s economy," said Erik Milito, API's Upstream director. "Americans have benefitted greatly from this Act and it should be seen as a clear success."

API commissioned two studies. One, by Advanced Resources International, sought to determine the number of deep water leases awarded between 1996 and 2000 under the Act, and the production volumes and expenditures related to those leases. The second study, by IHS Global Insight, looked at the economic impact of producing oil and natural gas from Outer Continental Shelf leases under the Act. The ARI study looked at MMS data and found that the 3,391 deep water leases awarded during that time produced $3.1 billion in bonuses for the U.S. government. Using industry and federal government average drilling and lifting costs, ARI calculated that companies spent $37.4 billion to develop the wells that were drilled. Again using government data, ARI estimated that the companies paid more than $5 billion in taxes. The report also shows that the leases resulted in the production of more than 400 million barrels of oil and more than 3 trillion cubic feet of natural gas.

The IHS study determined that real gross domestic product increased by an average of $4.5 billion per year as a result of oil and natural gas production from these leases and that employment increased by 91,000 jobs in 2005.

Despite the success of the Act in increasing production, increasing government revenue and boosting the economy, there are those in Congress who now seek to penalize companies that took the risks of buying and developing these leases by changing the rules in the middle of the game, locking them out of future leases unless they agree to pay royalties that were legally waived in the 1995 law.

"The courts have ruled there was nothing ambiguous about the 1995 Act," said Milito. "And those who would require the companies that took Congress at its word to now pay royalties retroactively are engaging in a dangerous game of bait-and-switch -- and destroying domestic jobs."