The two general royalty relief categories are “automatic” and “discretionary.” “Automatic” refers to Deepwater and Deep Gas royalty relief that is specified in the lease agreement when the lease is issued by BOEM. “Discretionary” refers to royalty relief that companies can apply for under certain scenarios, and include End-of-Life and Special Case royalty relief.
The Deepwater Royalty Relief Act of 1995 (DWRRA) was designed to promote increased exploration, development, and production on leases found in deep water areas of the Gulf of Mexico, providing economic incentives to operators. Leases sold between 1996 and 2000 in water depths 200 meters or deeper received “automatic” royalty relief in the form of large royalty suspension volumes. Pursuant to the Fifth Circuit Court Decision in Kerr-McGee v. DOI, price thresholds did not apply to these leases.
Leases sold between 2000 and 2010 continued to receive “automatic” royalty relief, but the royalty suspension volumes were much smaller and subject to price thresholds.
Beginning in 2001, BOEM adopted some incentives for new leases that would encourage drilling for deeper deposits of natural gas in the shallow waters (<200 meters). BOEM offered incentives of royalty relief for drilling below 15,000 TVD.
For certain leases in Sale 178 – Part 1, 180, 182, 184, 185 and 187, some may be eligible for a royalty suspension volume for shallow water deep gas production. Refer to the lease instrument and Final Notice of Sale.
Pursuant to 30 CFR 203.48, most of these leases have converted to the deep gas royalty relief provisions in the final rule.
- Amended Deep Gas Royalty Relief Regulations (November 18, 2008)
- Deep Gas in Shallow Water Final Rule (January 26, 2004)
- Deep Gas in Shallow Water Final Rule - Technical Amendments (April 30, 2004)
- Relief or Reduction in Royalty Under Certain Federal Oil and Gas Leases on the Outer Continental Shelf(April 30, 2004)
- Correction to the Deep Gas in Shallow Water Final Rule - Technical Amendments(May 7, 2004)
- Slide Presentation - Deep Gas Royalty Relief (Final Rule)
- Rocky Mountain Mineral Law Foundation Paper – Deep Gas Royalty Relief (Final Rule)
- Gulf of Mexico OCS Deep Shelf Gas Update: 2001-2002 – OCS Report MMS 2003-026
- The Promise of Deep Gas in the Gulf of Mexico – OCS Report MMS 2001-037
“Discretionary” royalty relief is available for companies to apply for under certain scenarios and includes End-of-Life and Special Case royalty relief. BSEE is responsible for discretionary royalty relief programs. BOEM encourages operators to directly contact the BSEE Regional Supervisor for Production and Development to discuss the details of any potential submittal. The royalty relief division of duties between BOEM and BSEE are described in the Royalty Relief Memorandum of Agreement. BOEM is responsible for providing economic assumptions for use in the evaluation of royalty relief applications.
- BOEM Economic Assumptions for BSEE Discretionary Royalty Relief Applications
- Regulations for Discretionary Relief (See 30 CFR 203.60-91)
- Guidelines for the Application, Review, Approval, and Administration of the Royalty Relief for Development and Expansion Projects - Appendix (I), NTL No. 2010-N03; Effective: March 25, 2010
- Deepwater Royalty Relief Economic Model: Economic Model Documentation, Model Spreadsheet, and Example Files
- Pre-Act - Applies to “fields” with leases issued prior to passage of the Deepwater Royalty Relief Act of 1995 (i.e., November 28, 1995) in water depths 200 meters or deeper that lie wholly west of 87 degrees, 30 minutes west longitude.
- End of Life
- Special Case
- Regulations for Discretionary Relief (See 30 CFR 203.80)
- Recommended Discount Rates and Policies Regarding Special Case Royalty Relief for Oil and Gas Projects in Shallow Water
- Recommended Special Case Royalty Relief Discount Rates for Deepwater Oil and Gas Projects Using Subsea Tiebacks Requiring Enhanced Flow Assurance Technologies
- 2021 Price Threshold Determination – The official BOEM determination of whether the Gulf of Mexico price thresholds have been exceeded by annual market prices for oil or gas, by lease vintage for the calendar year.
- Technical Documentation – Provides detailed explanation of how BOEM calculates the annual oil and gas prices and applicable price thresholds used to determine whether royalty relief applies in the calendar year.
- Price Thresholds – Beginning in the second quarter of each year, BOEM estimates the average New York Mercantile Exchange (NYMEX) market price at which oil or gas would have to sell during the remainder of the calendar year for the estimated price threshold to be exceed for that year. This includes the estimate as well as a record of past year price thresholds since 1994.
- NYMEX Price History – Spreadsheet of monthly oil and gas prices used in price thresholds determination.