The Trump administration is considering an industry-backed recommendation to cut royalty rates for all leases in federal waters by one-third, a proposal aimed at boosting offshore oil and natural gas production.
Under the recommendation, unanimously approved by the Department of Interior's Royalty Policy Committee on Wednesday, rates for offshore oil and gas leases in US waters would fall from 18.75% to 12.5%.
This rate cut could boost interest in drilling US waters, where interest has stagnated recently as output in onshore shale plays has climbed to historic highs.
"As companies determine where to spend their limited capital money for exploration, the 12.5% rate may be the tipping point for deciding whether to invest in US waters," Nicolette Nye, a spokeswoman for the National Ocean Industries Association, said Friday.
Interior has offered a lower, 12.5% royalty rate for leases in depths of less than 200 meters in order to generate more interest in drilling in shallow waters.
But Nye indicated that extending the lower rate to all waters may be needed due to years of relatively low oil and gas prices and increased regulation, which she said have "significantly impacted" the industry.
"While there is little that can be done about the price of oil and gas, the federal government can do something about the cost of doing business in [federal waters]," she said.
She called the proposal "a solid basis for re-invigorating the offshore industry."
Oil production in the US Gulf of Mexico has fallen from a peak of 1.73 million b/d in August 2009 to about 1.54 million b/d in December 2017, according to the US Energy Information Administration. EIA forecasts US Gulf of Mexico production will climb to 1.87 million b/d by the end of 2019, when it will account for about 16.4% of total US oil production, roughly the same amount it accounts for now.
It is unclear if Interior Secretary Ryan Zinke will adopt the recommendation of the policy committee. An Interior spokeswoman did not respond to a request for comment Friday. In addition to lowering the royalty rate, the policy committee also approved recommendations to reduce permitting times for drilling and to speed up sales of drilling rights in the Arctic National Wildlife Refuge.
The recommendations have drawn criticism from environmentalists and some congressional Democrats, who argue Interior is caving to industry demands.
"Zinke has stacked the deck with energy companies and asked them if they should pay less to extract oil, gas, and coal from our public lands and waters," Jennifer Rokala, executive director of the Center for Western Priorities, said in a statement. "It's like asking kindergarteners if they want birthday cake for dinner. You know the answer you'll get."
In a letter sent to Zinke this week, Washington Senator Maria Cantwell, the top Democrat on the Senate Energy and Natural Resources Committee, and Arizona Representative Raul Grijalva, the top Democrat on the House Committee on Natural Resources, urged Zinke to keep the 18.75% royalty rate in place.
"This proposal [to lower the rate] would amount to a giveaway to some of the most profitable companies in the world and rob taxpayers of potentially billions of dollars of revenues over the life of the leases," Cantwell and Grijalva wrote.
