The U.S. Minerals Management Service, just weeks after proposing hefty increases in annual rentals on Gulf of Mexico oil and gas leases, now wants to increase or initiate fees on an array of industry services for the entire outer continental shelf, in one case by 10,000 percent.
Anyone seeking to “voluntarily” form or expand an offshore exploration or production unit would have to ante up $10,000 for a government service that’s currently free, according to a proposed MMS rule change listed in the March 15 Federal Register.
In fact, the agency wants to hike or initiate fees in nine of 12 service categories, seven of which are now free to the public. MMS said it needs to recover costs associated with some of the free services it provides and that industry can well afford to pay, including smaller companies.
“The fees … would not have a significant economic effect on a substantial number of smaller entities because the fees are very small compared to normal costs of doing business on the OCS,” according to MMS.
MMS said the proposed rule would apply to 130 federal oil and gas lessees and 115 holders of pipeline rights of way.
ROW application one of three that would decrease
Applying for a pipeline right of way is listed among only three MMS service fees that actually would decrease under the proposed rule. The pipeline fee would be $1,100 compared to the current $2,350. Other fees that would decrease include converting a pipeline’s lease term, from $300 to $180, and recording a title and transferring operational rights, from $185 to $160.
However, some applicants would have to shell out thousands of dollars for services they currently get free. For example, a $4,600 fee would be charged for requesting a commingling of production down hole, $4,000 for requesting gas cap production, $3,100 for requesting production within 500 feet of a lease or unit line, and $1,700 for requesting suspension of operations or production.
Additional MMS freebies that would no longer be free include a $720 fee for revising or modifying existing exploration and production units and $140 for changing the name of a designated operator. Existing fees that would be increased include a pipeline right-of-way assignment, from $60 to $160, and filing a non-required document, from $25 to $170.
MMS said it based its proposed fee schedule on a combination of “direct” and “indirect” expenses incurred by the agency.
“Direct costs are comprised of the salaries, benefits, and special materials and equipment … attributed to each task-specific function or request,” MMS said. “The indirect costs include … items such as office space, insurance, postage, computers, phones, fax machines and general supplies not associated with a task or specific request.”
To keep service costs in line with inflation, MMS said it would adjust fees every five years and would do it without first seeking industry comments or issuing a formal notice, other than posting the schedule on its website.
Increased Gulf rentals already in works
In early March, MMS proposed an across-the-board increase in Gulf of Mexico annual lease rentals, plus a “sliding scale” rental system that could end up more than doubling the current annual rate for deepwater leases. The proposal, if adopted, will apply to future leases only, possibly beginning with the Western Gulf of Mexico lease sale in August, MMS said.
MMS specifically proposes to increase rentals to $6.25 an acre from $5 per acre on leases in water depths less than 200 meters (656 feet) and to $9.50 per acre from $7.50 per acre on leases in water depths greater than 200 meters.
Additionally, MMS has proposed a sliding scale rental structure that could dramatically increase rates on deepwater leases located in water depths over 400 meters (1,312 feet). On a 10-year deepwater lease, rentals would remain at the proposed $9.50 per acre level for the first five years and then escalate to $10.50 per acre in the sixth year, to $12 per acre in the seventh year, to $13.75 per acre in the eighth year, to $15.50 per acre in the ninth year, and to $17.50 per acre in the tenth year.
MMS also is seeking public comments on initiating fees on a host of other industry services that are currently free to the public. They include exploration plans, development and production plans, deepwater operations plans, drilling permits, applications for removing offshore platforms, and sand and gravel permits. While MMS has not yet proposed any fee structure for these services, the agency said it expects they would result in a $13.5 million in cost recovery for MMS.
