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Offshore Gas Drilling Incentives to Go On
By ROBERT GEHRKE, Associated Press Writer

WASHINGTON - The Bush administration said Friday it is extending an estimated $1 billion in subsidies to encourage natural gas production in the shallow waters of the Gulf of Mexico.


Interior Secretary Gale Norton announced her department would waive royalties from deep wells drilled off the coast, encouraging producers to drill deeper when searching for gas — activities that otherwise would not be profitable.


Norton said the new incentives will stimulate production, save consumers money and create new jobs in an area that has seen a 23 percent reduction in natural gas production in the 1990s.


Bill Van Wie, general manager of Devin International Inc.'s gulf division, said he expects the incentive will encourage exploration from producers reluctant to risk drilling a deep well.


"There's a lot of interest in the industry for deeper targets on the shelf, but it is an expensive proposition and it's a risky proposition, so any incentive is a helpful incentive," Van Wie said.


Government reports say that only one in five deep wells are productive, compared to more than half of shallower wells, and deep wells cost as much as $23 million to drill. Shallower wells cost less than $9 million.


"We own quite a few existing fields there and it's going to help us justify the expense of drilling deeper," Van Wie said.


Natural gas producers in the Gulf of Mexico are charged 16.4 cents on every dollar worth of gas they produce. The fee produces an average of $5 billion in revenue annually.


Americans use 22 trillion cubic feet of natural gas each year, and the Energy Department predicts demand will grow by 42 percent over the next two decades.


"Fortunately, there is no lack of natural gas in the United States. We have ample supplies that need to be accessed. This is a step in that direction," said Rep. Richard Pombo, R-Calif., and chairman of the House Resources Committee.


The rule, to be published Monday, waives royalties on the first 15 billion cubic feet produced by a well deeper than 15,000 feet. Wells deeper than 18,000 feet will not have to pay royalties on the first 25 billion cubic feet.


The department estimates the incentives will stimulate production of 56 trillion cubic feet of natural gas, stabilize domestic energy prices, save consumers an estimated $570 million annually and create 26,000 new jobs.


The energy bill stalled in the Senate would waive royalties on otherwise unprofitable on-shore gas wells and include additional incentives for even deeper off-shore wells.


Norton said waiving the gas royalties will not add to the federal budget woes because the revenue from the royalties would not be collected without the incentives.


"It would just stay in the ground if we did not have production taking place, so in essence this production allows revenue to come into the economy that would not be part of the economy otherwise," she said.


The department estimates $1.1 billion in royalties will not be collected through 2010, but as the waiver lapses, $1.4 billion will be collected over the following decade.