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U.S. offshore policy draws industry criticism

Offshore basins need incentives to stay competitive with countries like Mexico, an industry trade group said.

By Daniel J. Graeber
U.S. offshore policy draws industry criticism
Reduced royalty waters would make U.S. offshore more competitive, an industry trade group said. File Photo by project1photography/Shutterstock

April 18 (UPI) -- The United States can't stay competitive in the offshore oil and gas market without incentives like reduced royalty rates, an industry trade group said.

Going against policy recommendations, U.S. Interior Secretary Ryan Zinke said Tuesday the government won't cut royalty rates on profits from offshore drilling. In February, the Royalty Policy Committee, a panel made up for state, tribal and industry representatives, recommended cutting the rate from 18.75 percent to 12.5 percent.

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Zinke said that pro-industry moves by President Donald Trump suggested the oil and gas sector could continue on its own momentum alone.

"Right now, we can maintain higher royalties from our offshore waters without compromising the record production and record exports our nation is experiencing," he said.

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Ahead of a March auction for more than 77 million acres in federal waters offshore Alabama, Florida, Louisiana, Mississippi and Texas for oil and gas exploration and development, Randall Luthi, the president of the National Ocean Industries Association, said improved market conditions and the sheer size suggested it would be an improvement over previous auctions in the Gulf of Mexico. Reduced royalties would be further incentive.

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"The results of recent sales on the Mexican side of the Gulf of Mexico are a significant indicator that the U.S. cannot continue to offer the same acreage at the same terms on the U.S. side of the Gulf and expect the offshore industry to find the acreage appealing enough to be the automatic revenue generator it has historically been," NOIA spokeswoman Nicolette Nye said in a statement. "NOIA continues to believe that adjusting royalty rates, including for the deepwater Gulf of Mexico, can encourage new investment in the exploration and development of offshore oil and natural gas resources."

Mexico last month awarded 16 contracts to 14 companies grouped into 12 bidders during its latest auction for offshore contracts. The total investment over the lifetime of the contracts could be as high as $8.6 billion. The March auction in U.S. waters brought in only a fraction of that amount in high bids.

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Nye's concern is part of a broader expression of frustration from an industry President Trump has vowed to support.

Jack Gerard, the president and CEO of the American Petroleum Institute, said the president's announcement of a 25 percent tariff on steel imports and a 10 percent tariff for aluminum was inconsistent with a goal of U.S. energy dominance.

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The U.S. Association of Oil Pipe Lines, meanwhile, said the administration should use caution when considering new tariffs. Hundreds of millions of dollars could be added to the cost of major pipeline projects like Keystone XL and take jobs out of the U.S. economy.

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