New initiatives proposed by the Minerals Management Servicecould contribute an additional 500 Bcf to 1 Tcf/year of gasproduction between 2004 and 2006, according to MMS Director WaltRosenbusch.

“There are predictions of serious shortages of natural gas thiswinter, including the Northeast U.S.,” Rosenbusch noted last week.Although the initiatives can do little to help the currentsituation, they should spur domestic natural gas production as soonas 2004, he said.

These are “strong initiatives on the part of the MMS to dealwith the large projected increase in gas demand for the nation,”Rosenbusch added. “Several studies, including the report issued bythe National Petroleum Council, indicate that the nation’s demandfor natural gas will grow from the current 22 Tcf of gas to 29 Tcfof gas in 2010.”

The MMS rolled out its gas production enhancement proposal aspart of an announcement for Central Gulf Lease Sale 178. Theinitiatives include the following:

An incentive to drill for deep gas deposits located in theshallow-water shelf area of the Gulf of Mexico by providing forroyalty suspension for the first 20 Bcf of production from a welldrilled below 15,000 feet.

An incentive to drill for natural gas below the thick subsaltdomes. MMS proposes that lessees obtain a two-year extension of thefive-year primary lease term when an operator has drilled a firstsubsalt well and needs additional time to image the subsurface datato determine the appropriate next drilling target. This will avoidpremature lease expiration and the consequent delay in exploration.

In addition, MMS proposes modified initiatives for deep-waterroyalty relief, including the following:

An incentive to keep exploring and developing oil and gasdeposits in the ultra deepwater areas to replace the expiringprovisions of the 1995 Deepwater Royalty Relief Act. A royaltysuspension volume of nine million barrels of oil equivalent (BOE)is proposed for water depths from 800 meters to 1,599 meters, and aroyalty suspension volume of the first 12 million BOE in waterdepths equal to or greater than 1,600 meters.

An opportunity to apply for additional ‘discretionary’ royaltyrelief pursuant to new proposed rulemaking if certain conditionsare satisfied. MMS issued a new proposed rule on deepwater royaltyrelief in the Federal Register on Nov. 16 (65 FR 69259; see MMS’web site athttps://www.mms.gov/federalregister/PDFs/RoyaltyReliefPart203.pdf ).The rule proposes to allow royalty relief on a case-by-case basisfor certain additional categories of OCS leases. It also identifiedcircumstances in which MMS might consider special royalty reliefoutside the establish program.

MMS will conduct public workshops Dec. 12 in New Orleans andDec. 14 in Houston to discuss the new initiatives as well as theprovisions in the proposed rule on discretionary royalty relief.

The proposed Lease Sale 178 encompasses 4,366 available blocksin the Central Gulf Outer Continental Shelf planning area offshoreLouisiana, Mississippi and Alabama. The area covers about 23.07million acres. The blocks in this lease sale are located three to200 miles offshore in water depths ranging from four to 3,425meters. Estimates of undiscovered economically recoverablehydrocarbons that are expected to be discovered and produced as aresult of this lease sale range from 150 to 440 million barrels ofoil and 1.53 to 4.39 Tcf of natural gas.

Rocco Canonica

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