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MMS Initiatives Could Add 1 Tcf/Year of Production by 2004

MMS Initiatives Could Add 1 Tcf/Year of Production by 2004

New initiatives proposed by the Minerals Management Service could contribute an additional 500 Bcf to 1 Tcf/year of gas production between 2004 and 2006, according to MMS Director Walt Rosenbusch.

"There are predictions of serious shortages of natural gas this winter, including the Northeast U.S.," Rosenbusch noted last week. Although the initiatives can do little to help the current situation, they should spur domestic natural gas production as soon as 2004, he said.

These are "strong initiatives on the part of the MMS to deal with the large projected increase in gas demand for the nation," Rosenbusch added. "Several studies, including the report issued by the National Petroleum Council, indicate that the nation's demand for natural gas will grow from the current 22 Tcf of gas to 29 Tcf of gas in 2010."

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

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

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

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

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

An opportunity to apply for additional 'discretionary' royalty relief pursuant to new proposed rulemaking if certain conditions are satisfied. MMS issued a new proposed rule on deepwater royalty relief in the Federal Register on Nov. 16 (65 FR 69259; see MMS' web site at http://www.mms.gov/federalregister/PDFs/RoyaltyReliefPart203.pdf ). The rule proposes to allow royalty relief on a case-by-case basis for certain additional categories of OCS leases. It also identified circumstances in which MMS might consider special royalty relief outside the establish program.

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

The proposed Lease Sale 178 encompasses 4,366 available blocks in the Central Gulf Outer Continental Shelf planning area offshore Louisiana, Mississippi and Alabama. The area covers about 23.07 million acres. The blocks in this lease sale are located three to 200 miles offshore in water depths ranging from four to 3,425 meters. Estimates of undiscovered economically recoverable hydrocarbons that are expected to be discovered and produced as a result of this lease sale range from 150 to 440 million barrels of oil and 1.53 to 4.39 Tcf of natural gas.

Rocco Canonica

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