MMS Offers Incentives to Spur Offshore Production
The Interior Department's Minerals Management Service (MMS) has
announced that the OCS Lease Sale 178 planned for the central Gulf
of Mexico will offer producers a mix of incentives to encourage
ultra-deep-water exploration and development for both natural gas
and crude oil.
Lease Sale 178, which is scheduled for March 28 in New Orleans,
will offer producers two forms of royalty relief: one is strictly
for gas drilled in deep waters in certain blocks in the central
Gulf, while the second will apply to both gas and oil drilled in
deep waters. A final rulemaking on deep-water royalty relief, which
was issued Feb. 25, will provide a framework for the lease sale,
the MMS said.
The sale "will provide the first ever incentives for high
cost/high risk exploration for natural gas targets deep below the
ocean floor," said Acting MMS Director Tom Kitsos. "These prospects
hold great potential to increase domestic natural gas production
from deep horizons and below subsalt formations."
Specifically, the deep-gas incentives being offered would allow
producers to produce up to 20 Bcf of natural gas royalty-free,
provided it's at depths of greater than 15,000 feet, according to
MMS. It noted that 1,306 blocks in the central Gulf would be
subject to this relief.
In addition, the agency said deep-water royalty relief would be
applied to tracts in water depths greater than 800 meters. The
relief will be provided for both gas and oil production. The first
9 million barrels of oil equivalent (MMBOE) of production will be
royalty free from leases in water depths between 800 and 1,599
meters, while the first 12 MMBOE of production will be royalty free
for leases in 1,600 meters or more of water, the agency said. This
suspension of the royalty obligation will be granted only to
individual leases, not to fields.
The MMS said 410 blocks in the central Gulf will receive the 9
MMBOE royalty relief, while 2,460 blocks will be subject to the 12
Another initiative being offered applies to natural gas found
beneath thick subsalt domes, MMS said. Under this, lessees may be
entitled to an extension of the five-year primary lease term when
an operator has drilled a first subsalt and needs additional time
to image the subsurface data to determine the appropriate next
drilling target. This would avoid premature lease expiration and
the consequent delay in exploration, it noted.
"We have determined that this package of incentives provides the
right balance to encourage domestic explorations while also
ensuring the public a fair return for resources leases," Kitsos
Sale 178 encompasses about 4,391 available blocks in the central
Gulf Outer Continental Shelf (OCS) planning area offshore
Louisiana, Mississippi and Alabama. The area covers about 23.19
million acres. Blocks up for sale are located from three to 200
miles offshore in water depths ranging from four to more than 3,425
meters. The agency estimates that 1.53 Tcf to 4.39 Tcf of gas and
150-440 barrels of oil will be produced from the sale.