Deepwater royalty relief? Maybe. In the Gulf? Maybe not.

Secretary of the Interior Ken Salazar said he is “not closing the door” on the idea of lower royalty payments for deep water oil and gas exploration, but he isn’t so sure it is necessary in the deep water Gulf of Mexico.

ken_salazar Secretary of the Interior Ken Salazar. (Andrew Harrer/Bloomberg)

In a meeting with the Houston Chronicle editorial board today Salazar said his recent visit to Murphy Oil’s Medusa spar 100 miles south of New Orleans in the Gulf of Mexico showed him how sophisticated the E&P industry’s efforts have been.
“The technology is there and it isn’t as difficult to explore there today as it used to be,” Salazar said. “The deep water is proving very productive and profitable.”
While Medusa is certainly quite a nice piece of work, the industry might argue it’s no longer the edge of the envelope for the deep water. Rather it’s projects like BP’s Tiber find some 250 miles offshore that could use that royalty relief as an inducement for the size of the risks exploration out there carries.
Salazar said he’s still analyzing all the information available on whether to continue the stalled Bush administration proposal to open up as many as 300 million acres off the Atlantic and Pacific coasts to oil and gas drilling. Salazar extended to the end of September an initial March 23 deadline for the public to weigh in on the draft plan. He’ll be reviewing environmental studies on the plane back to Washington today, he said, and hopes to have a decision within a month, he said.
While a conservative group said this week it believes the roughly 500,000 public comments received are in favor of expanded offshore drilling by 2-to-1, Salazar said he must follow the Outer Continental Shelf laws that give him broad discretion in making decisions but also require him to take into account the policies of the states.
For example, he said, the state of Virginia says it wants to have oil and gas exploration offshore but with certain caveats, such as a minimum distance from shore of 50 miles. Virginia’s governor has also said he doesn’t want to move ahead until there’s more up-to-date data on the region’s potential since offshore seismic data is many decades old.
Salazar also said recently he was phasing out the royalty-in-kind system that let companies pay for production on federal lands not in cash but in oil or gas, and called for an investigation of an oil shale lease sale that happened late in the Bush administration that gave lower-than-average royalty rates to a handful of firms.
“We’re asking what was given in consideration,” for the favorable lease terms, Salazar said.
Former Secretary of the Interior Gail Norton has since gone to work for one of the lease holders, Shell, but Salazar said his investigation was “narrowly focused on January 15th and the time leading up to that.”

salazar_with_dolly Salazar was sure to wear his hat when visiting with Dolly Parton. (Photo by Tami A. Heilemann – DOI)

By the way, Salazar is a 5th generation Coloradan whose family were rural farmers for a while, so he’s known to wear a cowboy hat from time-to-time. We thought for sure he’d bring it to Houston — a city in one of the few states where people wear them without being ironic — but his head was bare. Why?
“I stepped on it while I was on a plane a few weeks back,” Salazar said.