Natural Gas Drilling

Natural Gas Drilling

February 01, 2004

Natural gas drilling in the shallow water regions of the Gulf of Mexico got a boost from the US government.

The US Department of the Interior announced a new federal royalty relief program on January 23 that will apply to existing federal leases and cover deep-well drilling in water depths of up to 656 feet. Under the program, federal royalties are suspended on the first 15 billion cubic feet of gas produced from well depths from 15,000 to 18,000 feet, increasing to the first 25 billion cubic feet on wells 18,000 feet and deeper. Dry hole credits of up to two per lease are also available to help offset the costs of any unsuccessful drilling. This program is similar to a royalty relief program that has been in effect for new offshore federal leases since March 2001.

The goal is to boost production of natural gas from near-shore shallow waters in Texas, Louisiana, Mississippi and Alabama — areas that gas companies have not been eager to explore because of the expense involved in deep-well drilling and the difficulty in finding gas using seismic surveys. The US government estimates that as much as 55 trillion cubic feet of gas is deep underneath the shallow waters of the Gulf Coast.

The relief program is expected to cost the US government $1.1 billion in lost royalty revenues, but the government believes the cost will be more than offset by the $1.4 billion in additional production royalties that are expected when the royalty relief program ends.

Keith Martin