The Interior Department’s Minerals Management Service (MMS) hasannounced that the OCS Lease Sale 178 planned for the central Gulfof Mexico will offer producers a mix of incentives to encourageultra-deep-water exploration and development for both natural gasand crude oil.
Lease Sale 178, which is scheduled for March 28 in New Orleans,will offer producers two forms of royalty relief: one is strictlyfor gas drilled in deep waters in certain blocks in the centralGulf, while the second will apply to both gas and oil drilled indeep waters. A final rulemaking on deep-water royalty relief, whichwas issued Feb. 25, will provide a framework for the lease sale,the MMS said.
The sale “will provide the first ever incentives for highcost/high risk exploration for natural gas targets deep below theocean floor,” said Acting MMS Director Tom Kitsos. “These prospectshold great potential to increase domestic natural gas productionfrom deep horizons and below subsalt formations.”
Specifically, the deep-gas incentives being offered would allowproducers to produce up to 20 Bcf of natural gas royalty-free,provided it’s at depths of greater than 15,000 feet, according toMMS. It noted that 1,306 blocks in the central Gulf would besubject to this relief.
In addition, the agency said deep-water royalty relief would beapplied to tracts in water depths greater than 800 meters. Therelief will be provided for both gas and oil production. The first9 million barrels of oil equivalent (MMBOE) of production will beroyalty free from leases in water depths between 800 and 1,599meters, while the first 12 MMBOE of production will be royalty freefor leases in 1,600 meters or more of water, the agency said. Thissuspension of the royalty obligation will be granted only toindividual leases, not to fields.
The MMS said 410 blocks in the central Gulf will receive the 9MMBOE royalty relief, while 2,460 blocks will be subject to the 12MMBOE relief.
Another initiative being offered applies to natural gas foundbeneath thick subsalt domes, MMS said. Under this, lessees may beentitled to an extension of the five-year primary lease term whenan operator has drilled a first subsalt and needs additional timeto image the subsurface data to determine the appropriate nextdrilling target. This would avoid premature lease expiration andthe consequent delay in exploration, it noted.
“We have determined that this package of incentives provides theright balance to encourage domestic explorations while alsoensuring the public a fair return for resources leases,” Kitsossaid.
Sale 178 encompasses about 4,391 available blocks in the centralGulf Outer Continental Shelf (OCS) planning area offshoreLouisiana, Mississippi and Alabama. The area covers about 23.19million acres. Blocks up for sale are located from three to 200miles offshore in water depths ranging from four to more than 3,425meters. The agency estimates that 1.53 Tcf to 4.39 Tcf of gas and150-440 barrels of oil will be produced from the sale.
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