PDF _ RS22567 - Royalty Relief for U.S. Deepwater Oil and Gas Leases
4-Feb-2009; Marc Humphries; 9 p.

Update: Previous releases:
September 18, 2008
February 27, 2008
December 7, 2007

Abstract: The most common incentives for offshore oil and gas development include various forms of royalty relief. The Outer Continental Shelf Lands Act (OCSLA) authorizes the Secretary of the Interior to grant royalty relief to promote increased oil and gas production (43 U.S.C. 1337). The Deep Water Royalty Relief Act of 1995 (DWRRA) expanded the Secretary’s royalty relief authority in the Gulf of Mexico outer continental shelf (OCS).

Controversy over royalty relief currently focuses on the lack of price thresholds in Minerals Management Service (MMS) OCS lease sales held in 1998 and 1999. Without the price thresholds, deepwater producers continued to benefit from royalty relief, even as oil prices hit record levels. In an unresolved issue over the Secretary of the Interior’s authority and discretion to impose price thresholds, the Department of the Interior asserts that the Secretary of the Interior is not required to impose price thresholds in each lease (but has the discretion to do so). All lease sales held since the enactment of DWRRA included price thresholds, except those held in 1998 and 1999. According to the MMS and the Government Accountability Office (GAO), omitting price thresholds for those two years could cost the federal government as much as $10 billion. This situation has prompted efforts to amend the 1998 and 1999 leases to include price thresholds. A recent court decision, however, ruled that the Secretary of the Interior does not have authority to impose price thresholds in those DWRRA leases. On September 16, 2008, the House passed H.R. 6899. Under Title I, this bill would, among other things, deny new Gulf of Mexico oil and gas leases to lessees holding leases without price thresholds or payment of or agreement to pay the proposed “conservation of resources” fees. An earlier bill (H.R. 6) with similar language passed the House in January 2007 by a vote of 264-123. However, on December 6, 2007, the House approved the Senate-passed version of energy policy legislation (H.R. 6) without the royalty relief provisions discussed above. The royalty relief provisions were not enacted into law.

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Topics: Energy, Economics & Trade, Natural Resources

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