By Lori LeBlanc, LMOGA Offshore Committee Director for BIC Magazine
Last summer, President Donald Trump made a bold commitment to make America not only energy independent, but energy dominant. The President announced his policy to boost domestic oil and gas production and oil and gas exports, resulting in a “golden era” for the U.S. energy supply.
This announcement was welcome news for members of the Louisiana Mid Continent Oil and Gas Association as well as our ports and offshore service companies who have been challenged by global oil prices in recent years. While offshore energy production in the Gulf is high now, this production may taper off in the future due to today’s lack of investments for exploration.
According to Dr. Fatih Birol of the International Energy Agency, the United States is set to put its stamp on global oil markets when it comes to production over the next few years, but the weak global investment picture remains a source of concern. Increased production in the U.S., Brazil, Canada and Norway is expected to continue through 2020, but more investments are needed now to make up for declining oil fields and meet robust growth in global demand after 2020.
To achieve President Trump’s goal of energy dominance, therefore, it is critical that substantive federal policy initiatives be implemented to spur an increase in capital investment in the Gulf. U.S. energy dominance fueled by a vibrant Gulf of Mexico energy industry will provide energy and economic security for our nation, with hundreds of thousands good-paying jobs for Americans everywhere.
In recent months, we have seen key initiatives by the Trump administration to encourage increased oil and gas exploration and investments through the five-year lease plan, regulatory reform, and royalty relief.
The Department of Interior (DOI) is working on a new five-year Outer-Continental Shelf (OCS) lease plan that will open more acreage for offshore oil and gas development. With increased OCS access, oil and gas operators will have greater opportunity for exploration in areas previously considered off limits and the U.S. will maximize its abundant OCS oil and gas resources in a responsible manner to produce more dependable energy.
In the past year, the Trump Administration has also pursued reform of regulations that unduly restrict offshore oil and gas operations and greatly increase costs without meaningful improvements in safety and environmental protection. As officials continue to evaluate existing regulations and identify costly and unnecessary rules for repeal or modification, operators are hopeful that changes will reduce undue costs and time associated with offshore exploration. Reducing costs makes offshore leases more attractive and encourages the investments necessary to find and produce oil and gas for America.
Boosting offshore drilling is also the goal of a recently announced proposal to reduce offshore royalty rates. On February 28, the DOI’s Royalty Policy Committee recommended a reduction in royalty rates for offshore oil and gas leases in U.S. waters from 18.75% to 12.5%. Companies are faced with an array of choices around the world for spending their limited drilling dollars, and this six percent reduction in royalty rates could be the reason they choose to stay and spend their money in U.S. waters.
As Nicolette Nye of the National Ocean Industries Association said, “While there is little that can be done about the price of oil and gas, the federal government can do something about the costs of doing business in federal waters.”
Without royalty relief, regulatory reform and increased access through an expanded OCS lease plan, America’s energy security and energy dominance are at risk. Offshore oil and gas operators will look outside of U.S. waters to spend their limited dollars for exploration and development, meaning no drilling rig jobs, no maritime jobs, no catering jobs, and no revenues of any size contributed to the federal or state treasuries. LMOGA supports these efforts to strengthen investments in America’s oil and gas resources and sustain our nation’s contributions to the worldwide demand for increased energy.