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Royalty Relief for U.S. Deepwater Oil and Gas Leases

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Publication Date: September 2008

Publisher(s): Library of Congress. Congressional Research Service

Series: RS22567

Topic: Energy (Petroleum industry)

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. How these price thresholds were omitted is the subject of ongoing congressional and administrative investigations. 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). However, 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 at least $10 billion.

This situation has prompted efforts to amend the 1998 and 1999 leases to include price thresholds. On January 12, 2007, Representative Rahall and others introduced H.R. 6, cited as the Creating Long-Term Energy Alternatives for the Nation Act of 2007. Under Title II, 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 newly established "conservation of resources" fees. The bill would also repeal royalty relief provisions (sections 344 and 345 ) of the Energy Policy Act of 2005. On January 18, 2007, the House passed H.R. 6, without amendment, by a vote of 264-123. On February 12, 2007 the Senate introduced S. 554, an act to reduce the federal budget deficit, containing language on royalties nearly identical to Title II of H.R. 6.