Rep. Edward Markey (D-MA) a senior member of the House Resources Committee, on Monday asked the head of the Interior Department’s Minerals Management Service (MMS) to explain why producers are being given greater royalty relief for natural gas produced from deep wells in shallow water than for wells drilled in the deep waters of the Outer Continental Shelf (OCS).
While the recent controversy on Capitol Hill over whether to end royalty relief has focused on producers who are active in the deep waters of the OCS, Markey said that royalty relief is even greater for production of natural gas from deep wells located in shallow waters — which are defined as wells that are drilled to depths of more than 15,000 feet below the ocean’s surface in water depths of 400 meters or less. The growing interest in shallow-water gas production was seen in the March 15 Central Gulf of Mexico lease sale, which generated nearly $1 billion in total bonus bids, a 38% hike over the previous year’s sale in the Central Gulf, he noted.
MMS estimates the price cap above which royalty relief will be suspended for deep gas from shallow wells will be $9.91/Mcf this year, or 44% higher than the price cap for gas production in the deepwater OCS ($6.90/Mcf). Markey estimated that current gas prices (slightly above $7/Mcf for April delivery) would still have to rise by roughly 40% before MMS would suspend royalty relief on deep gas produced from any of the leases that were offered in the recent Central Gulf Mexico sale (Lease Sale 198).
Proponents have argued that royalty relief was approved by Congress to encourage producers to drill in the high-cost, high-risk deep waters of the Gulf of Mexico. For Markey, this begs the question of why is royalty relief being provided to producers to drill for deep gas in the shallow waters of the Gulf.
“With high natural gas prices and oil and gas companies showing an increased interest in deep gas production, the high price cap could lead to the loss of significant revenue for the federal treasury and the American taxpayer,” said Markey in a letter to MMS Director Johnnie Burton. “The American people deserve to know why the Department of Interior’s Minerals Management Service has decided to set such a high price cap for natural gas produced from deep wells in shallow water,” he noted in a separate statement.
“The recent lease sale in the Gulf of Mexico shows us that the oil and gas companies have apparently discovered this latest loophole that could lead to the loss of billions of dollars for American taxpayers over the life of these leases.”
Markey called on Burton to provide further information on deep gas production and the royalty relief cap, including:
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