US Increases Royalty Rate For New Offshore Oil And Gas Leases

by Leroy Baker, Tax-News.com, New York

12 January 2007

Interior Secretary Dirk Kempthorne has announced that the royalty rate for most new offshore deepwater federal oil and gas leases has been increased to 16.7%.

The new rate, which excludes Alaska, will take effect with the first 2007 Gulf of Mexico lease sale scheduled for late August.

Most federal oil and gas is leased at a 12.5% royalty rate both onshore and offshore. The Outer Continental Shelf Lands Act (OCSLA) grants the Secretary of the Interior discretion to establish a higher royalty rate.

The Interior department's Minerals Management Service (MMS) estimates that the increased royalty rate of 16.7% for new deepwater offshore Gulf of Mexico leases will increase revenue from royalty payments by $4.5 billion over 20 years.

MMS predicts that, by 2017, this increased revenue would offset any decline in bonus and rental revenues and any revenue losses from a decline in production. It also estimates a decline of bonus and rental revenues at $820 million over 20 years and decline in production at 5%, or 110 million barrels of oil equivalent, over 20 years.

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