The Department of the Interior remains committed to ensuring that the public receives a fair market value for the use of Outer Continental Shelf conventional energy resources. This determination involves a careful balancing of economic, employment, environmental, and national-security considerations. Since the publication of the 2011 Comparative Assessment of the Federal Oil and Gas Fiscal System, significant changes to oil and gas market conditions have taken place globally. This study serves as one tool for informing decision-making on the appropriate fiscal terms for Federal oil and gas leases.
This study compares the U.S. Gulf of Mexico (GOM) and frontier areas with comparable international jurisdictions competing for upstream oil and gas investment using updated information. Similar oil and gas field sizes in peer group countries are analyzed using consistent financial metrics, including government take, internal rate of return (IRR) and net present value per barrel of oil equivalent. The report also analyzes a variety of alternative fiscal terms. This study finds:
GOM Shallow Water: The GOM shallow water, defined as having a water depth of less than 200 meters, is a mature province. As compared to the peer jurisdictions, the remaining yet to be discovered resources are smaller, gas-prone reservoirs. As a result, GOM shallow water provides a lower return to investors and is an unattractive investment target when compared to other peer jurisdictions competing for investment. While the reduction in federal corporate income taxes, combined with the 12.5 percent royalty rate in shallow water for new leases, has resulted in a reduction in GOM shallow water government take of 22 percentage points since 2011 for new leases, the study finds that additional fiscal incentives would likely be required for further development.
As provided in the summary presentation below, in order to maximize resource recovery, production, life of existing fields, and activity levels, additional fiscal incentives would likely be needed for gas fields. Similarly, the study indicates that small shallow water oil fields tend to be uneconomic and that categorical royalty relief could help improve expected returns. Improvements to the design and application process for shallow water discretionary royalty relief could create an incentive to develop small discoveries that could utilize existing infrastructure. These changes could maximize the development potential of existing shallow water fields and infrastructure.
GOM Deepwater: The GOM deepwater has higher capital and operational costs than shallow water. Significant portions of GOM deepwater undiscovered resources are located in plays with high pressures and high temperatures (HPHT) and require substantial capital investment.1 Many of these HPHT prospects are not economic and are less attractive than those in peer jurisdictions. While the current US deepwater GOM fiscal system offers returns above the hurdle rates for most larger discoveries, the GOM rates of return are not as attractive as Guyana, Brazil, Angola, United Kingdom and Mexico, which offer rates of return above 20% under the base case scenario. Therefore, the study suggests international companies are likely to prioritize these jurisdictions over the GOM.
Alaska Offshore Frontier: The jurisdictions studied in the Alaska offshore frontier peer group are characterized by high per-unit capital and operating costs. The high cost associated with finding and developing oil and gas resources in the Alaska offshore frontier peer group challenges the economic viability of doing so under the base and low price scenarios.
Non-Alaska Offshore Frontier: There have been only a few discoveries offshore the Non-Alaska frontier peer group countries, and not all of these discoveries have been deemed commercial. The U.S. Non-Alaska offshore frontier regions studied in this report face greater commercial challenges than the other jurisdictions in the peer group. For example, prospects in the U.S. Atlantic and Eastern GOM are expected to be in deeper water and formation depths than those of the comparable international jurisdictions studied. Federal offshore natural gas fields are uneconomic under most price cases. However, under the high price scenario, the U.S. frontier offshore oil fields offer sufficiently high rates of return. Only half of the fields modeled for the U.S. jurisdictions in this peer group yield are economic under the base price scenario, and very few projects modeled for this peer group are economic under the low price scenario.
Comparative Assessment of the Federal Oil and Gas Fiscal Systems (Gulf of Mexico)
1The study provides yet-to-find resource estimates that are the resources likely to be developed within the next 40 years. These estimates do not reflect BOEM's own assessment of undiscovered oil and gas resources, which can be found at: https://www.boem.gov/2016a-National-Assessment-Fact-Sheet/.