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BOEM completes analysis of royalty rates for offshore oil and gas leases

BOEM has completed an analysis of their royalty rates and have decided to set the royalty rate at 12.5% for leases located in water depths less than 200 m in the proposed Gulf of Mexico (GOM) Sale 249. This is lower than the proposed 18.75% royalty rate for shallow water leases published in the Proposed Notice of Sale, and is consistent with the federal onshore oil and gas lease royalty rate of 12.5%. The purpose of this change is to adjust the royalty rate to reflect recent market conditions, thereby encouraging competition and continuing to receive a fair and equitable return on oil and gas resources. The royalty rate in 200 m of water and deeper will remain at 18.75% as in the Proposed Notice of Sale.

BOEM has made this decision after careful consideration of market conditions, available resources, leasing, drilling, and production trends, along with comparable international fiscal systems. In particular, hydrocarbon price conditions and the marginal nature of remaining GOM shelf resources suggest a royalty rate reduction is an appropriate and timely action. The shallow water royalty rate reduction targets the GOM shelf where exploration, development, and production are in decline and where critical infrastructure already exists.

If BOEM moves forward with the sale, the royalty rates and other lease terms related to GOM Sale 249 will be formally announced in the Final Notice of Sale at least 30 days prior to the sale date. The sale date is currently scheduled for 16 August 2017. BOEM is sending this Note to Stakeholders informing you of this change ahead of the Final Notice of Sale because it was made after the Proposed Notice of Sale for GOM Sale 249 (published in March of this year).

GOM Sale 249 is the first scheduled lease sale in the 2017-2022 Outer Continental Shelf Oil and Gas Leasing Program, and is also the first scheduled Gulf of Mexico region-wide sale that encompasses all available acreage in the Western, Central, and Eastern planning areas. The unleased blocks are located between 3 nautical miles offshore out to the outer limit of the United States’ jurisdiction over the Outer Continental Shelf (OCS) in water depths ranging from 3 meters to more than 3,400 m.

BOEM is also analyzing a price-based royalty system and will be engaging stakeholders on this concept later this year. BOEM’s concept of a price-based royalty system would provide an incentive to lessees through lower royalty rates in times of lower oil prices, while also ensuring the Federal government receives a greater return for Outer Continental Shelf resources when prices are high. A price-based royalty system will not be in place for GOM Sale 249. BOEM expects to provide more information and provide opportunity for stakeholder input in the coming months.

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