Bowing to the immense pressure mounted by the democrats, the U.S. government decided to lift a long-standing moratorium on drilling in Bristol Bay, Alaska. The decision was also taken when OPEC started planning to reduce supply of oil and gas in the wake of steeply falling global crude prices to hold the prices from falling. The government has also decided to claim higher royalties on all new deepwater leases in the Gulf of Mexico.
The move will definitely upset extra incentives granted to the oil companied to offset some of the high operating cost in those offshore areas. The oil companies in the U.S. are also likely to witness their income squeezing a bit as the House is expected to roll back oil industry tax breaks.
On the other hand, the U.S. government would be able to generate an additional income to the tune of $4.5 billion over 20 years. The decision has increased the royalty rate almost by a third to 16.7 percent from 12.5 percent of oil and gas sales. The U.S. government was since long under fierce criticism for failing to collect billions of dollars from the companies involved in drilling for oil and gas in federal waters.
Interestingly, the recent change will not affect the existing companies having lease for offshore exploration. It will also not affect the mistake in the hundreds of leases that may allow the companies to run away from an estimated $10 billion in royalties over the next five years.
The effort of the Interior department to renegotiate those leases seems to be failing as it has managed to reach agreement with just five out of 56 companies. The two major oil companies operating in Gulf of Mexico, Chevron and Exxon Mobil have out rightly refused to sing a fresh deal. However, the Democrat-controlled House is expected to pass a legislation to punish the companies who refuse to renegotiate by imposing a new tax or preventing them to acquire new leases.
