MMS Responds with Royalty Relief Modifications

The U.S. Department of the Interior's Minerals Management Service (MMS) has updated two Notice to Lessees (NTL) to help the domestic industry adjust to and survive low prices. "Oil prices, adjusted for inflation, are down to levels last seen in the early 1970's," said Carolita Kallaur, associate director, Offshore Minerals Management Program. "While benefitting consumers generally, unanticipated price drops have some adverse consequences for society. When the price of oil falls, it can simply make continued production of a given oil field uneconomic. MMS would like to make sure industry has every opportunity to make a project economic rather than the nation losing the oil and gas resources that would be left behind if the wells are abandoned early." For the second time in five months, MMS lowered price forecasts used by existing leaseholders that apply for deepwater royalty relief. Fields in water deeper than 656 ft. in the Central and Western Gulf of Mexico (GOM) demonstrating economic need at these prices qualify for suspension of royalty payments. MMS has reduced its 1999 estimate price to better reflect prices companies are currently experiencing. MMS has revised its guidelines for those applying for deep water and end-of-life royalty relief. In addition, MMS has identified the need for relief outside these formal programs. Under the formal process for instance, a lessee who has invested significant resources to lower production costs would be required to wait at least a year before applying for end-of-life royalty relief. Under the new approach, a lessee who has made a commitment of capital and meets additional criteria would be able to apply immediately during this period of low oil prices. End-of-life royalty relief and exceptional circumstance relief are aimed at situations where resources would be prematurely abandoned without the relief being granted.