Deepwater Investment
Oil and gas producers should expect a political fight after a US appeals court ruled in their favor about royalties from deepwater leases. They also should prepare for wild claims about associated “costs.”Deepwater royalty relief, one of the most effective energy programs in US history, elicited outrage in 2006 when the New York Times reported that the federal budget lacked estimates of royalty income for deepwater Gulf of Mexico leases issued in 1998 and 1999. The leases didn’t reinstate royalty, as did those issued in similarly administered years, when oil and gas prices exceeded statutory “thresholds.”
Courts, meanwhile, have been addressing the question whether the Department of the Interior’s Minerals Management Service had authority to limit royalty relief on the basis of price for leases issued in the five years from 1996 through 2000. So far, the consistent answer is no.