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Issues » Fact Sheets
Energy Policy Fact Sheets
Offshore Development
Each year, independents dramatically increase their presence in the offshore, in both traditional production areas and in frontier deepwater leases. More than 400 independents are active in the Gulf of Mexico, with at least 60 independents participating in the development of deepwater leases. Independents are buying the vast majority of leases at sales in the Gulf of Mexico.
Summary
When oil experienced a price crisis, the IPAA responded by advocating legislation that would provide for royalty incentives in different forms. Given the recovery of prices, efforts regarding royalty incentives have been redirected to administrative options. Offshore producers believe that marginal producing properties are being abandoned prematurely and marginal fields are being left behind. A royalty incentive program may encourage development of these properties. Additionally, independents believe new leases to be offered in deep and ultra-deep waters could benefit from royalty increases.
IPAA is addressing several potential legislative issues including monitoring MMS’ new proposed offshore lease form, DOI’s attempt to deem an oil and gas lease not to be a property interest, the impact of essential fish habitat designations, the fairness of an ocean policy act, sufficient appropriations for MMS to ensure timely lease and permit issuance, offshore impact assistance legislation, and offshore moratoria. Regulatory issues include MMS regulations and US Coast Guard rewrites, safety and disqualification of operators, blowout prevention procedures, and discharge permits.
Highlights of Priority Issues
- Royalty Incentives for Offshore Properties. IPAA is working with an industry coalition and DOI/DOE to attempt to model the economic impact of offering royalty incentives for offshore marginal well and marginal fields not yet developed, up to deepwaters. Depending on the results of these modeling exercises, IPAA may seek implementation of these incentives via a rulemaking.
- A collaborative effort with MMS, and
- A third party effort.
- Maintain access to the potential resource areas in the offshore, with a focus on Sale 181. Bills have been introduced each Congress that would place under permanent moratorium all offshore areas currently closed to leasing (which accounts for 86% of the U.S. offshore). Offshore oil and natural gas production has established an exemplary record of safe, environmentally sound operations. Vice-President Gore recently announced a permanent moratorium for drilling offshore Florida and California. IPAA has made Sale 181 in the eastern Gulf of Mexico a priority. It would be the first sale held in the eastern Gulf for a number of years and is scheduled for late 2001.
- DOI’s Attempt to Deem a Federal Lease not to be a Property Interest. During the 105th and 106th Congress, DOI attempted to insert into Bankruptcy Reform Legislation, a provision that would deem a federal lease not to be a property interest. Its stated goal was to give the department quicker access to the property during a bankruptcy proceeding. The lending community quickly pointed out that such a provision would have a chilling affect on capital made available to producers for development. This consequence is unacceptable and would result in fewer wells being drilled. IPAA is encouraging an alternative approach for dealing with DOI’s concerns with abandoned properties.
- Critical Fish Habitats. IPAA is concerned about the Department of Commerce issuing final regulations that could place off limits oil and gas development in areas of the offshore deemed to be an essential fish habitat. Final regulations may be proceeding that don’t recognize the fact that offshore oil and gas operations can coexist in a safe and sound manner in areas containing fish habitats. If the Commerce Department begins to limit access to the offshore, congressional action may be necessary.
- Coast Guard Regulations. IPAA is concerned about a proposed major revision of Coast Guard regulations affecting Outer Continental Shelf (OCS) activities. The revision intends to address new developments in the offshore industry and to implement existing legislation and interagency agreements. Many of the proposed changes would have a substantial cost impact on independent producers operating in the OCS. IPAA is working with an industry coalition to outline the substantial monetary impact the proposal will have on the offshore oil and gas industry. The coalition, which has asked the Coast Guard to extend the comment due date, is currently working to develop comments and related material.
- New Fees for Offshore Operations. As part of the President's FY 2001 Budget, the Administration is proposing new fees to the tune of $10 million/or various applications to offset budget reductions. IPAA opposed this new assessment and will seek the appropriate level of appropriations so MMS can perform its duties without assessing fees.
Other royalty incentive efforts include participation in three other industry workgroups. One of the workgroups is modeling royalty incentives for ultra-deepwaters, which could be offered as part of the lease sale. The second workgroup is making recommendations as to how MMS may streamline its case-by-case application process for deepwater leases that existed prior to November 1985. The third workgroup is modeling the economic need for a continuation of royalty incentives for properties in deepwaters (200 m – 1600 m). This modeling effort has taken two forms:
August 2000
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