The Louisiana Mid-Continent Oil & Gas Association (LMOGA) is committed to a full recovery of our offshore energy industry for the safety and security of the nation and stands ready to help restore confidence in our economy again. While yesterday’s decision by OPEC+ to cut production moves us closer to stabilizing world oil markets, significant challenges remain for the oil and natural gas industry as they continue to battle historically low prices and combat a historic drop in demand from COVID-19.
We must continue to mitigate the spread of COVID-19 and stimulate the economy until global demand and supply stabilizes. In a letter sent to President Trump on April 2, LMOGA urged the Administration to take action to protect the offshore sector in the Gulf of Mexico. The letter outlines targeted actions to support the survival of offshore energy during this crisis.
Suggested actions to help the industry recover include royalty relief, lease term extensions, an extension of decommissioning obligations and protection of critical inactive infrastructure as a result of storage capacity limits.
As our producers work to supply the energy needed to fuel our nation’s economy, especially in times of crisis, we support royalty suspension or reduction on production associated with federal leases as a temporary emergency measure that reflects certain economic environments and acknowledges price conditions and thresholds. The circumstances of today call for immediate action to reduce or suspend royalty rates for all producers alike. These actions will ensure that a robust energy industry remains viable to meet energy demands during this crisis and beyond and continue to strengthen our national security.
“Our American ingenuity built the energy renaissance our country has enjoyed, and we firmly believe our industry is resilient and will recover from these current crises,” said Tyler Gray, LMOGA President. “However, we find ourselves in a circumstance where there is a need for urgent and bold action.”
LMOGA also recommends a 3-year extension of the primary lease term of non-producing federal oil and gas leases in the Gulf of Mexico to allow companies and others across the federal Outer Continental Shelf (OCS) to better map out their spending and work plans for the years ahead and preserve cash to maintain liquidity in the short term. Granting an extension or providing additional flexibility in decommissioning obligations associated with current and expired offshore leases will also be beneficial to operating companies in the Gulf.
Lastly, global crude oil oversupply will test storage limits in the first half of 2020. If left unattended, production could be forced to shut-in within a few short weeks. We are urging the Administration to consider appropriate mechanisms to ensure critical inactive infrastructure is protected in the event production is shut-in.
Several of the state’s leading industry and business organizations, as well as state legislators, have sent similar letters bringing these issues to the attention of the Administration.