President Bush Tuesday lifted the ban on drilling in the Bristol Bay area in the North Aleutian Basin of Alaska and the 181 South area in the Central Gulf of Mexico, giving the Interior Department the option to offer producers leases in these areas as part of its five-year oil and natural gas leasing program for 2007-2012. Interior Secretary Dirk Kempthorne also announced an increase in the royalty rate for most new federal deepwater oil and gas leases to 16.7% from 12.5%.
In 1998, then-President Clinton issued an executive order reinforcing the ban on drilling in the Bristol Bay area, most of the eastern Gulf of Mexico (part of which has since been redesignated the Central Gulf) and other coastal areas until 2012. By his action Tuesday, Bush loosened the drilling prohibitions against exploration and production in the Bristol Bay area, located in the southwestern corner of Alaska, and the 181 South area in the Central Gulf.
Rep. Edward Markey (D-MA) said he supported the Bush administration’s decision to up the royalty rate, but he was sharply opposed to opening Bristol Bay to leasing. “The Bush administration’s decision to open up oil and gas drilling in Alaska’s Bristol Bay, one of our nation’s most sensitive fisheries, underscores the administration’s ongoing commitment to extending our addiction to oil even at the expense of spoiling environmentally sensitive areas.”
Interior’s 2007-2012 leasing program includes options for one or two lease sales in a small portion of the North Aleutian Basin, an area covering about 5.6 million acres. This area would be subject to environmental reviews, including public comment, before any lease sale occurs, Kempthorne said.
The North Aleutian Basin Planning Area is gas-prone, with an estimated 67% of the area’s undiscovered hydrocarbon energy consisting of natural gas, according to Interior’s Minerals Management Service (MMS). It estimated that the area has technically recoverable, undiscovered gas resources of up to 23.38 Tcf. The agency pegged potential oil resources at about 2.5 billion barrels.
The 181 South area, located south of Alabama and west of Florida, covers about 5.8 million offshore acres. The area also was included in Interior’s 2007-2012 leasing program. In December, Congress passed and Bush signed into law legislation giving producers access to a total of 8.3 million acres in the gas-rich Lease Sale 181 area and in a tract south of Lease Sale 181 (181 South). It requires the first lease sale to be held within one year of enactment of the bill. Kempthorne said that MMS will first conduct a detailed environmental review of the 181 South area before any leasing occurs. The entire Lease Sale 181 area, including 181 South, is estimated to hold 1 billion additional barrels of oil and nearly 6 Tcf of natural gas.
The royalty rate hike to 16.7% for new deepwater oil and gas leases (excluding Alaska) will take effect with the first 2007 Gulf of Mexico lease sale scheduled for late August, according to Kempthorne. Most federal oil and gas is leased at a 12.5% royalty rate both onshore and offshore. The Outer Continental Shelf Lands Act grants the Interior secretary the discretion to set a higher royalty rate.
The MMS estimates that the higher royalty rate will increase revenue from royalty payments by $4.5 billion over 20 years. The agency projects that by 2017 the increased revenue will offset any decline in bonus and rental revenues and any revenue losses from an expected decline in domestic production. The MMS said it anticipates bonus and rental revenues will decline by $820 million over 20 years and production will drop by 5%, or 110 million barrels of oil equivalent, over the next two decades.
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