Royalty Relief Supports American Offshore Energy

The scale of stay-at-home orders enacted to stop the fast and relentless spread of COVID-19 is unprecedented. As policymakers continue these steps, it is important to remember that there are economic consequences from this storm that will be felt for a long time. With energy demand dropping by historic amounts and ongoing fallout from the Saudi Arabia – Russia oil price war, oil prices are cratering. For the first time ever oil futures prices dropped into the negative.

American energy faces an existential threat.

Lower demand means lower prices, and competitive pricing is not the worst news for consumer. But at current prices, American energy production cannot break even. As energy producers struggle to stay afloat, they cut spending and investment. Spending cuts spread throughout the service and supply chain, cascading with layoffs and shutdowns. Unfortunately, energy producing regions like the Gulf of Mexico are already seeing the first wave of job losses and economic pain.

The offshore energy industry makes up a community of hundreds of thousands of workers from thousands of companies. They are the fabric of local towns and communities throughout the Gulf Coast and America. This community includes producers, drilling contractors, service companies, manufacturers, suppliers, marine vessel companies, marine construction companies plus thousands of other small businesses that include caterers, risk management firms and safety engineers. This community works in concert to produce the energy that raises society. But unless there is a respite, the layoffs and downsizing will continue, permanently devastating these communities.

For almost a quarter of a century, the U.S. Gulf of Mexico produced more than one million barrels of oil per day. Recently, innovation and ingenuity has pushed production to nearly 2 million barrels per day. The Gulf of Mexico is an anchor of American energy production and economic growth.

Declining Gulf of Mexico oil and gas production has far-reaching implications. The oil produced in the Gulf of Mexico follows some of the most stringent regulatory systems in the world. U.S. offshore production provides vast amounts of energy with a comparatively smaller environmental footprint, with lower levels of emissions of methane and other pollutants, and with world-class water use, management and performance.

Revenues from Gulf of Mexico production have generated more than $120 billion for the U.S. Treasury since 2000. Hundreds of millions of dollars have been shared with Gulf states and provided to the Land and Water Conservation Fund. The offshore energy community takes great pride in living, working and enjoying the beautiful outdoors throughout the Gulf of Mexico coastline.

Offshore production has made major contributions to our energy and national security. This provides the United States with powerful geopolitical advantages and helps our allies around the globe.

The National Ocean Industries Association is working with our elected officials for temporary relief to help avoid the catastrophic results from a devastated Gulf of Mexico energy sector. We applaud our leaders in Washington for quickly passing three rounds of legislation to respond to COVID-19, keep paychecks coming, protect our small and medium-sized businesses and boost our economy.

Initiatives like the Paycheck Protection Program from the CARES Act will buoy jobs and economic growth. The diplomatic efforts of President Donald Trump to bring OPEC and Russia together to address their ill-time oil price war provides an extra layer of security.

However, thousands of American offshore energy jobs remain in limbo; more must be done.

The Trump administration should use all of its available tools to provide relief for the offshore community. Policies should include temporary and broad royalty relief and the extensions of leases and other provisions to help sustain the viability of offshore investments, projects and jobs. The statutorily authorized tools that the Administration has at its disposal will enable it to take reasonable, temporary steps to support our industry during this unprecedented time, and time is truly of the essence.

The offshore community is united in its support for these steps which, if taken expeditiously, will help ensure that additional capital is available to maintain activity in the Gulf and to keep the paychecks for hundreds of thousands of workers coming.

Erik Milito is the president of the National Ocean Industries Association which represents and advances a dynamic and growing offshore energy industry, providing solutions that support communities and protect our workers, the public and our environment.

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