New policy initiatives important to American energy dominance

The Department of Interior's first central Gulf of Mexico lease sale under newly named Secretary Ryan Zinke March 22 was a strong one, reflecting the industry's renewed optimism and interest in the deepwater Gulf.

Lease Sale 247, the last to be held under the Outer Continental Shelf (OCS) 2012- 2017 Leasing Program, garnered nearly $275 million in high bids for 163 tracts covering 913,542 acres of the central Gulf. As Secretary Zinke put it, "The Gulf of Mexico is one of the most productive oil and gas basins in the world, and its mature offshore and onshore infrastructure supports a safe and responsible development of our domestic energy resources."

In fact, as of March 1, more than 97 percent of all current leases on the U.S. OCS are in the Gulf; the remaining 3 percent are off the coasts of Alaska and California. In my May column, I noted several oil and gas operators have announced major projects in the Gulf over the past year, demonstrating confidence remains high in this energy province. The recent lease sale echoes that sentiment.

We now have an opportunity to build on this confidence and create an even stronger Gulf energy industry for our nation's future. Secretary Zinke and the new administration could be the champions we need to make substantial policy improvements that not only spur an increase in investment now but also sustain the Gulf's energy production for decades to come.

LMOGA's Offshore Committee has spent the better part of the past seven years fighting regulations that were punitive and costly without benefits to health, safety or the environment. Some of these regulations actually increased risks to worker safety. Our committee is now working with the new administration to fix these unreasonable regulations, but we also recognize there are additional measures beyond regulatory reform that will lead America to "energy independence as well as energy dominance," as Secretary Zinke noted at an industry conference in April.

Here are a few policy initiatives LMOGA is currently following or exploring with the new administration to modernize America's energy policy in the Gulf and produce more American energy and American jobs:

Royalty review -- During an economic downturn, consideration should be given to flexible royalty rates on new developments as a tool to jumpstart major project development in the Gulf. Many of the largest production fields now on line in the Gulf were discovered and brought on line using this model during the last industry downturn. Within his first month in office, Secretary Zinke established a 28-member Royalty Policy Committee to advise on the market value and collection of revenues from federal energy and mineral leases. The committee may also advise on the potential impacts of proposed policies and regulations, including whether a need exists for regulatory reform.
Operation-based lease term extension -- The timeframe for deepwater wells and ultra-deep wells drilled on the OCS should provide 365 days between operations at the end of the lease's primary term. Given the fact many of the wells being drilled today are more complex and technically challenging than those drilled a decade ago, more time is needed. Furthermore, because of new heightened regulatory requirements, the time it takes to plan these wells and develop exploration plans and permit applications is much longer than in the past.
More than 1.5 million barrels of oil and gas are produced daily from the Gulf of Mexico, representing approximately 18 percent of total U.S. crude oil production and 5 percent of total domestic gas production. Offshore oil and gas exploration and production activities provide more than 650,000 high-paying, high-tech American jobs. Offshore leases, royalties and rent proceeds on average contribute $5 billion-$8 billion per year to finance our government, the second-largest contributor after personal income taxes. A portion of these monies is returned to Gulf states like Louisiana to fund critical infrastructure and environmental protection projects.

LMOGA's Offshore Committee looks forward to working with the Interior Department to advance these and other energy policy initiatives to sustain and expand the substantial benefits of Gulf energy production.