Gas Royalty Relief – Deep and Shallow Water Gas

Oil and gas companies that drill on public lands or in federal waters pay royalties for the oil and gas they extract. The amount of royalties they pay depends on the amount extracted, the market price for oil and gas, and the royalty rate. The Deepwater Royalty Relief Act of 1995 (DWRRA) allowed the Secretary of the Interior to waive royalty payments for new leases in the outer continental shelf (OCS) of the Gulf of Mexico (GOM) from 1996-2000. Partly because the Minerals Management Service (MMS) issued leases in waters greater than 200m (deep water) in 1998 and 1999 that failed to include price thresholds, DWRRA has cost the federal government billions of dollars in forgone royalties. MMS later offered leases starting in 2001 with royalty relief for initial natural gas production from wells of at least 15,000 feet in Gulf of Mexico waters less than 200 meters deep. This “shallow water, deep gas” incentive was formalized in 2004 and then expanded in the Energy Policy Act of 2005. Leases in deep water account for most foregone royalty revenue from natural gas production in the Gulf of Mexico today.