Royalty Relief Incentives for Deepwater Leasing. DOI has continued to provide deepwater royalty relief in all lease sales since 2001. Deepwater areas of the Gulf of Mexico (water depth greater than 1,000 feet) are expected to provide substantial volumes of new oil and natural gas production. There are now about 140 deepwater discoveries of which about 60 are online. About 29 of the leases issued with relief are producing or in units that are producing. The continued use of royalty relief in the deep waters of the Gulf provides the needed economic incentive to keep industry moving forward on new technologies and exploring deeper water frontiers. The deepwater success story has helped not only double oil production from Federal offshore lands over the last 10 years; it has also staved off decline in OCS natural gas production by adding increased supply from deepwater to take the place of declining shallow water production.

Lease Term Extensions for Gulf of Mexico Subsalt Exploration. In July 2002, MMS published a final rule that allows for granting leaseholders additional time to analyze complex geophysical data in areas under salt sheets. MMS is providing lease extensions for certain qualifying exploration activities that focus on reservoir targets that occur beneath subsurface salt sheets. Vast resources of oil and natural gas may underlie sheets of salt on the OCS. MMS estimates that 6 to 16 trillion cubic feet of gas and 0.5 to 1.2 billion barrels of oil may lie beneath salt, and could yield additional oil and gas in the 2008 through 2010 timeframe.

Royalty Relief for Development of Natural Gas from Deep Depths in Shallow Water. Since 2001, royalty relief to promote deep gas development has been offered as part of OCS lease sale terms to encourage production from wells on new leases drilled to deep horizons (greater than 15,000 feet total depth) in shallow waters. In addition, MMS has proposed a rule extending this deep gas royalty relief program to leases issued before 2001. Deep depth opportunities in shallow water are fertile areas to quickly increase natural gas production because relatively little of this deep gas potential has yet to be explored and extensive infrastructure already exists in shallow water so new production could reach markets quickly. MMS estimates that from 5 to 20 trillion cubic feet of natural gas may be located on the shelf thousands of feet beneath already developed oil and gas reservoirs. MMS estimates these deep underground formations could power our 56 million homes that use natural gas for 4 years, and production could start in 2004-2005.

Promoting Alaska Production with Royalty Relief Incentives for Beaufort Sea Lease Sales - DOI has been investigating the best tools to encourage exploration and development offshore Alaska and develop appropriate incentives for lease sales in this area. The result was terms and conditions for Beaufort Sea Lease Sale 186 which was held on September 24, 2003. The Beaufort Sea sale area encompasses about 9.7 million acres offshore Alaska's northern coast. DOI believes that these incentives which include royalty suspensions that allow a specific volume of oil from a lease to be produced royalty-free, subject to a price threshold; reduced minimum bid levels; and sliding scale rentals will stimulate interest and activity on the Alaska OCS. These offerings have the potential to result in production of 460 million barrels of oil that may lie near existing infrastructure and development could begin within 7 years. The production from the sale could contribute $930 million to the U.S. Treasury, and potentially create an average of 800 jobs over 30 years.

Oil and Gas Interest Continues in Alaska's Beaufort Sea Americans Stung by High Fuel Prices Government Expert Cites Offshore Natural Gas as Potential Solution Workshop on Incentive to Increase Deep Gas Production from Shallow Gulf of Mexico Waters To Be Held in Houston