The head of the Louisiana Mid-Continent Oil and Gas Association isn’t happy with the decision by Interior Secretary Ryan Zinke to maintain existing royalty rates for offshore oil and gas lease sales.
Zinke, on Tuesday, rebuffed an advisory panel’s recommendation to slash royalty rates for offshore drilling to 12.5%, from 18.75%, citing the success of President Donald Trump’s energy strategy. The panel said dropping the rate would incentivize more oil and gas production.
“We can maintain higher royalties from our offshore waters without compromising the record production and record exports our nation is experiencing,” he said.
LMOGA President Chris John, in a statement issued today, calls Zinke’s decision surprising, especially after last month’s historic Gulf of Mexico lease sale received a modest response from investors.
Billed as the largest sale in American history, the auction yielded roughly $124.8 million in winning bids from drillers. John says the ho-hum response to the lease sale is evidence that more needs to be done to attract new investments to the Gulf, create more jobs and increase revenues to the federal government.
“The federal government needs to do more to attract industry capital investments in the Gulf of Mexico in order to remain competitive as compared to other basins around the world,” he says.
Citing data from economist Loren Scott, LMOGA says lease sale revenues in the central Gulf declined from $851 million in 2014 to $274 million in 2017—a 32% drop. Participation by companies during that same period fell by more than half— from 50 firms to 28.
“The recent increase in America’s energy production, specifically in the Gulf of Mexico, is a result of the oil and gas industry’s capital investments made several years ago,” John says. “This current level of production and the federal revenue generated from our offshore waters is not sustainable for the long-term without an increase in industry investments today which can be supported by a reduced royalty rate.”
Increasing investments in the Gulf also will result in an increase in critical offshore revenues for Louisiana’s coastal restoration and protection efforts, he says.
John is happy the Interior Department will at least heed the panel’s recommendation to study international onshore and offshore data to further support the need for royalty relief.
“We urge DOI to aggressively initiate this study to advance America’s energy dominance well into the future,” John says.
