US rejects advice of industry-heavy advisory panel to slash offshore royalty rates
US interior secretary Ryan Zinke said today he will retain an 18.75pc royalty rate for new oil and gas leases in water depths more than 200 meters. That goes against the advice of his own "royalty policy committee" that unanimously recommended cutting the rate to 12.5pc for all upcoming lease sales to encourage production in hard-to-develop offshore acreage.
Lowering royalty rates was unneeded, Zinke said, because higher energy prices, greater regulatory certainty, tax cuts and an improving economy have led to positive market conditions in the oil and gas sector.
"The president's energy dominance strategy is paying off," Zinke said. "Right now, we can maintain higher royalties from our offshore waters without compromising the record production and record exports our nation is experiencing."
The decision will be disappointing to the offshore oil industry, which had hoped lower royalty rates would make offshore acreage more competitive. Oil companies have been cautious about investing billions of dollars in offshore projects that take years to complete, when shale resources are available where production can begin within months.
Zinke convened the royalty policy committee last year and chose its members. The recommendation to reduce royalty rates to 12.5pc came from a working group led by a Shell's top offshore regulatory official. The industry group the National Ocean Industries Association's president Randall Luthi had a leadership position on the committee.
But the royalty policy committee — chaired by Zinke's energy policy counselor Vincent DeVito — did not release any economic analysis justifying its contention that a lower royalty rate was needed to encourage offshore production. The committee, which included no environmentalists or public interest groups, unanimously approved the recommendation on 28 February.