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Sharp Increase in Deep-Water GOM Production

Sharp Increase in Deep-Water GOM Production

Natural gas production from the deep water Gulf of Mexico has increased 252% over the last five years, from 159 Bcf in 1994 to 560 Bcf in 1998, according to the Department of Interior's Minerals Management Service.

The increase in deep water production bolstered overall GOM figures from the 1994 total of 4.8 Tcf to 5.01 Tcf in 1998. The total Gulf production last year, however, was off about 107 Bcf from 1997's 5.16 Tcf. The deep water increase from 382 Bcf in 1997 to 560 Bcf in 1998 helped mitigate the 286 Bcf decline in shallow water production between the two years.

"The 1998 increase is significant and of national importance," said new MMS Director Walt Rosenbusch. He noted the profile of Gulf of Mexico producers is changing with larger companies concentrating on the deep water, while independents focus on prospects closer to the shore.

MMS also reported oil production from deep water Gulf areas has risen 279% in the last five years from 115,000 b/d in 1994 to 436,000 b/d in 1998, also mitigating an overall decline in oil production.

Rosenbusch credited the deep water Royalty Relief Act with encouraging the more expensive deep water drilling programs. "There has been growth of tremendous proportions in the number of active leases" since the program was installed, he told reporters in his first briefing since taking office last May.

Noting that royalty relief expires in Aug. 2000, Rosenbusch said the MMS has asked industry what needs to be done going forward to encourage deep water drilling. It's not clear that any further actions are necessary on the part of the MMS since the industry now has a large inventory of leases to work off and there are two more deep water lease sales before next August.

Rosenbusch said he is dedicated to continuing the MMS as the best resource manager in the world, and to the ongoing effort to re-engineer the department's royalty management program. "We want to reshape and retool to be parallel with where the industry is. We are looking at new philosophies, new techniques and approaches to royalty valuation and royalty management."

One of the new techniques is the royalty-in-kind (RIK) pilot projects currently underway for gas and oil. Questioned, he said the MMS had no dates in mind for putting full-fledged programs into effect. He noted the three programs underway were testing various aspects of the process and cautioned that RIK was "not an option in all instances......We're looking at a variety of scenarios and continuing to develop and refine the process. There are reasons why could do it, and reasons why shouldn't do it. This is part of the re-engineering. We'll continue to look at other ways to do RIK."

Rosenbusch, who served for a time with the Texas General Land Office, said he generally had a positive relationship with the oil and gas industry.

Ellen Beswick

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