Zinke: No decrease for offshore lease sale royalty rates

U.S. Secretary of the Interior Ryan Zinke has said that the Department of the Interior will not lower royalty rates for future offshore oil and gas lease sales.

The DOI said on Tuesday that the Royalty Policy Committee (RPC) made its initial recommendations on February 28, including the one to set a royalty rate of 12.5 percent on all Outer Continental Shelf (OCS) lease sales at all water depths through 2024.

According to the DOI, an improving economy, federal tax reforms, higher energy prices, and greater regulatory certainty led to positive market conditions, prompted Secretary Zinke’s to keep the royalty rate in 200 meters of water and deeper at 18.75 percent.

Secretary Zinke said: “Right now, we can maintain higher royalties from our offshore waters without compromising the record production and record exports our nation is experiencing. The Administration is grateful for the Committee’s hard work on these significant energy issues.”

In addition to the recommendation for lower royalty rates, the RPC also recommended that the Department updates its studies on international onshore and offshore data that guide its decision-making, as well as a study of comparable offshore producing nations of Guyana and Mexico, their royalty rates, total revenue, lease block sizes, and recent sales in particular.

Vincent DeVito, Royalty Policy Committee chair, added: “Today’s decision reflects the oil and gas industry’s improving market conditions for the safe and responsible development of our abundant energy resources. The Committee will continue to study ways to improve our programs, including recommendations to improve market conditions for other forms of energy like coal and offshore wind.”

Last summer, the Department announced the current fiscal terms used for future offshore lease sales. Namely, the terms include a 12.5 percent royalty rate for leases in less than 200 meters of water depth, and a royalty rate of 18.75 percent for all other leases issued, beginning with the August 2017 lease sale.

When the market or other conditions dictate, the Department has the statutory authority to adjust royalty rates for upcoming sales in accordance with federal law.

It is worth noting that the Outer Continental Shelf Lands Act grants the Secretary the authority to conduct lease sales on the OCS that “assure receipt of fair market value for the lands leased and the rights conveyed by the Federal Government.”

Lessees pay bonuses, rentals, and royalties reflecting the value of the rights to explore and potentially develop and produce OCS oil and gas resources. These revenues are distributed to the Federal Treasury, state governments, Land and Water Conservation Fund, and the Historic Preservation Fund.

DOI added that it, through the Bureau of Ocean Energy Management, sets minimum bid levels, rental rates, and royalty rates by individual lease sale based on its assessment of market and resource conditions as the sale approaches.