Interior Department’s Minerals Management Service (MMS) is proposing changes to its regulations governing royalty relief for deepwater leases to comply with a 2004 decision of the U.S. Court of Appeals for the Fifth Circuit.

The appellate court ruled that the MMS could not exclude a lease issued under the Deep Water Royalty Relief Act of 1995 (DWRRA) from receiving royalty relief if it was part of a field that was producing before the act became law. The court further said the royalty suspension volumes prescribed under the royalty relief law apply to each lease, not jointly to all leases in a particular field. The MMS notified affected leases in August 2005 that it would respect the court’s decision and would subsequently revise its regulations.

The DWRRA offered oil and natural gas producers incentives to develop high-cost, high-risk deep waters in the Gulf of Mexico. It required Interior to suspend royalty payments for certain volumes of production on all leases in more than 656 feet of water in the Central and Western Gulf that were issued in the first five years following the enactment of the act.

The royalty suspension volumes (specified volumes of royalty-free production) ranged from 17.5 million to 87.5 million boe, depending on water depth. The MMS said it will accept comments on the proposed rule for 60 days.

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