OCEAN OIL

Deep Water Royalty Relief Act

The United States Deep Water Royalty Relief Act (DWRRA; 43 U.S.C. §1337) implemented a royalty-relief program that relieves eligible leases from paying royalties on defined amounts of deep-water petroleum production over Federal Outer Continental Shelf lands.

After its expiration in 2000, the DWRRA was redefined and extended to promote continued interest in deep water. The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMR) defines a "deep-water" lease as having a minimum water depth of 200 meters (656 feet). To be eligible for relief, the lease must be located in the Gulf of Mexico and west of 87 degrees and 30 minutes West longitude (the Florida-Alabama boundary). BOEMR must determine that the field is not economically viable without relief. Until November 2000, the water depth of the lease determined the amount of gas that was exempt from royalty payments. For deep-water leases considered "new" (purchased between November 28, 1995 and November 28, 2000), the volume of gas not subject to royalty obligation was classified into three categories of royalty. Reduced royalty rates were available for deep-water production from leases purchased before November 28, 1995. For these leases, the Secretary of the Department of the Interior determines the suspension volume on a case-by-case basis.

This legislation provides economic incentives for operators to develop fields in water depths greater than 200 m (656 ft). These incentives include the suspension of Federal royalty payments (for new leases issued 1996-2000) on the initial 17.5 million barrels of oil equivalent (MMBOE) produced from a field in 200-400 m (656-1,312 ft) of water, 52.5 MMBOE for a field in 400-800 m (1,312-2,624 ft) of water, and 87.5 MMBOE for a field in greater than 800 m (2,624 ft) of water.

The original terms and conditions of the DWRRA expired in November 2000, and since that time, the BOEMR has offered a revised incentive plan for royalty relief. For deep-water leases purchased after November 2000, royalty relief may be specified at the discretion of BOEMR prior to the sale of each lease. In this renewed incentive program, royalty suspension is no longer granted in the form of volumes determined by water-depth intervals. Instead, BOEMR assigns a lease-specific volume of royalty suspension based on how the determined suspension amount may affect the economics of various development scenarios. In this program, the most economically risky projects would receive the most relief, while less venturesome leases would receive little or no relief. For example, a deep-water field might not receive any relief if it is adjacent to an existing gathering system. On the other hand, a similar field may receive a great deal of relief if it is located far beyond the current pipeline infrastructure.

Glossary

Citation

(2011). Deep Water Royalty Relief Act. Retrieved from http://www.eoearth.org/view/article/160979

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