U.S. Department of the Interior
Minerals Management Service
Office of Public Affairs

NEWS RELEASE

MMS Announces Lease Terms and Conditions for Central Gulf Lease Sale 178

The U.S. Department of the Interior’s Minerals Management Service announced today the terms for the Final Notice of Sale for Outer Continental Shelf (OCS) Central Gulf of Mexico Lease Sale 178. The sale, scheduled for March 28, 2001 in New Orleans, will offer incentives to increase domestic natural gas and oil production from federal offshore areas. In addition, final rulemaking was issued for deep water royalty relief that will provide a framework for Lease Sale 178 and future lease sales. The Federal Register published both notices today.

"This Administration is committed to finding environmentally safe methods to help meet our nation’s energy needs," said Interior Secretary Gale Norton. "The OCS program holds the promise of the opportunity to advance offshore technology, and to provide the American people with substantial energy and economic benefits."

Secretary Norton noted that she was particularly pleased that the terms of this sale provide an appropriate mix of incentives to ensure exploration and development continues in ultra deep waters with the same momentum as in the past.

"Lease Sale 178 will provide the first ever incentives for high cost/high risk exploration for natural gas targets deep below the ocean floor," according to Acting MMS Director Tom Kitsos. "These prospects hold great potential to increase domestic natural gas production from deep horizons and below subsalt formations," he added.

In addition, MMS announced that deepwater royalty relief will be applied to tracts in water depths greater than 800 meters, within the framework of the new rule making. Under the provisions of the new rule making, the specific terms for royalty relief will be granted to individual leases, not fields as in the Deep Water Royalty Relief Act, and will be designated at the time of the final notice of sale. In the case of Sale 178, the royalty "suspension volumes" range from nine million barrels of oil equivalent (BOE) in water depths of 800 – 1599 meters and to twelve million barrels of relief in depths greater than 1,600 meters. Under the terms of this leasing system, lessees are allowed to produce these volumes of oil and gas before any royalty obligations are due the federal government.

Sale 178 encompasses about 4,391 available blocks in the Central Gulf of Mexico Outer Continental Shelf planning area offshore Louisiana, Mississippi, and Alabama. This area covers about 23.07 million acres. Blocks in this sale are located from three to 200 miles offshore in water depths ranging from four to more than 3,425 meters. Estimates of undiscovered economically recoverable hydrocarbons expected to be produced as a result of this sale range from 150 to 440 million barrels of oil and 1.53 to 4.39 TCF of natural gas.

Blocks in the Central Gulf of Mexico portion of the "Western Gap", which were the subject of our new U.S./Mexican boundary agreement will not be offered. MMS plans to offer these blocks in Sale 178, part 2, which will be held concurrently with lease sale 180 in the Western Gulf of Mexico, scheduled for August 2001.

In addition to the fixed up-front royalty suspension volumes, MMS also may provide additional discretionary relief if lessees meet certain criteria as published in a November 16, 2000, Proposed rule making and referred to in the deep water royalty relief framework rule announced today. This supplemental royalty relief is not available to leases sold during the 1996-2000 DWRRA new lease sale provision time period.

Further, MMS specifically designed two initiatives to spur domestic natural gas production and to address the projected increase in gas demand for the nation. One is an incentive to drill for deep gas deposits in the shallow-water shelf area of the Gulf of Mexico by providing royalty suspension on the first 20 billion cubic feet (Bcf) of production from a well drilled below 15,000 feet sea level. The other initiative applies to natural gas found beneath thick subsalt domes. Lessees may be entitled to an extension of the 5-year primary lease term when an operator has drilled a first subsalt well and needs additional time to image the subsurface data to determine the appropriate next drilling target. This will avoid premature lease expiration and the consequent delay in exploration.

"We have determined that this package of incentives provides the right balance to encourage domestic exploration while also ensuring the public a fair return for resources leased," Kitsos stated. "Although the level of up-front suspension volume relief is less than that mandated for the first five years of the DWRRA, the first-time provision of discretionary relief gives us the tool to adjust the amount of relief to the specific circumstances of each venture. I would also note, however, that in light of the current energy market situation, we will, of course, consider the entire mix of policy options for future decisions as we support the Secretary’s participation in the Vice President’s Energy Task Force," Kitsos added.

The MMS, a bureau in the U.S. Department of the Interior, is the federal agency that manages the nation's natural gas, oil and other mineral resources on the outer continental shelf. The agency also collects, accounts for and disburses more than $5 billion per year in revenues from federal offshore mineral leases and from onshore mineral leases on federal and Indian lands.

-MMS-

MMS Internet website address: http://www.mms.gov

Back to top