Sen. Bill Cassidy seeks royalty relief as shallow water production plummets in Gulf

Greg Hilburn, Monroe News Star Published 10:49 a.m. CT Sept. 6, 2019

Louisiana U.S. Sen. Bill Cassidy has asked U.S. Interior Secretary David Bernhardt to lower the royalty rate that shallow water oil producers must pay the government to save a sector of the industry where production has plummeted.

The current royalty rate, or tax rate producers must pay, is 12.5%.

Shallow water production in the Gulf of Mexico has declined by 75% since 2000, the Republican senator said.

While overall offshore production has increased, Cassidy said, most of it has shifted to deeper waters where the largest companies operate.

Cassidy said smaller, independent producers, like many of those based in Louisiana, have all but abandoned their shallow water platforms.

"Without incentives such as royalty relief for stakeholders to reinvest and apply the benefits of new technologies to increase production and grow revenues for aging shallow water wells and infrastructure, I am concerned these declines will continue leading to the removal of this infrastructure, job loss and stranded oil and gas important to the nation’s energy security," Cassidy wrote in a letter to Bernhardt.

"In addition, extending the life of these shallow water wells could lead to additional future royalties and other revenues from sustained development," he continued. "Future production in these gulf regions is also important in order to achieve the administration’s ultimate goal of achieving greater energy independence."

Cassidy said only 28% of the more than 7,000 platforms installed in the shallow water Gulf of Mexico regions remain in production and that many of those produce fewer than 300 barrels per day.

"These declines have impacted shallow water operators as well as contractors and oilfield service companies that support the drilling, production and construction activities and provide employment for thousands of employees across the Gulf Coast," he said.

Cassidy said the royalty reduction would particularly benefit the Acadiana region with Lafayette as the hub of the state's oil and gas industry.

He said the Outer Continental Shelf Lands Act grants the secretary the authority to set royalty rates.

Cassidy believes a reduction in the royalty rate would boost production and offset the lower rate producers would have to pay.

“Increased shallow water drilling increases production, which increases federal royalty payments, and creates more American and Louisiana jobs,” Cassidy said. “This begins by making a better business case for drilling.”