The Interior Department’s Minerals Management Service (MMS) has issued on final rule on new procedures for obtaining royalty relief for certain offshore federal deepwater leases. It will allow some lease operators to apply for additional discretionary relief where royalty relief in the lease term is insufficient and the marginal nature of the project will preclude its further development.

The rule will shorten the processing time for evaluating future applications and reduce the time needed by operators to prepare applications for new leases. “The effect of this new rule will be increased natural gas and oil production, which will help the nation to meet our growing demand for these energy resources,” Said Interior Secretary Gale A. Norton.”It will also provide an incentive for developing marginal properties, resulting in additional revenue to the U.S. Treasury.”

For leases sold after 2000, MMS will consider applications from lessees that may already have some royalty relief, but need additional amounts to be economical. Also, applications will focus on development projects on a lease basis rather than on the more difficult to define basis of geologic fields. Upon approval of an application, the amount of relief will be directly related to the economic viability of the projects as presented by the operators and evaluated by MMS scientists and economists.

Norton said the additional royalty relief follows up on the administration’s National Energy Plan study which “recommends that I consider economic incentives for environmentally sound offshore oil and gas development and explore opportunities for royalty reductions, consistent with ensuring a fair return to the public.”

The new rule also makes some changes in the way applications for royalty relief are processed for deepwater leases sold prior to 1996. The MMS has granted seven deepwater applications for royalty relief since 1996.

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