Interior Dept. wants to lower royalties that offshore oil, coal companies pay

Enlarge / Oil platform in the Gulf of Mexico. There are nearly 5,000 functioning oil platforms in the Gulf of Mexico, and 27,000 abandoned wells. (Photo by: Dave Walsh/VW Pics/UIG via Getty Images) (credit: Getty Images)

Last week the Interior Department's Royalty Policy Committee issued a recommendation suggesting that Interior Secretary Ryan Zinke lower royalty rates for offshore oil and gas drilling on seabed owned by the US government. If Zinke approves the recommendation, royalties from offshore drilling would drop from 18.75 percent to 12.5 percent, the lowest royalty rate permitted by the federal government.

Given the relatively low price and abundance of oil in the world market today and the expense of executing new offshore drilling operations, the committee's recommendation could make it more attractive for drilling companies to consider bidding for offshore oil leases. Zinke announced earlier this year that he would make up to 90 percent of US federal waters open to oil drilling, but there has been considerable pushback from states and muted enthusiasm from companies that will have to undertake years of ramp-up before they see marketable oil.

Currently, offshore oil operations on federal lands require that companies pay 18.75 percent in royalties back to the federal government. If Zinke approves of the recommendation, the new royalty rate would not be applied retroactively, according to The Hill. But any new offshore oil drilling contracts would be able to take advantage of the new rate.

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