How Trump Could Help Oil and Gas Drillers

Trump could help offshore drillers by making three changes to policy

donald-trump

Oil and gas drillers in Gulf of Mexico are expected to get some relief from Donald Trump-administration, according to a report from CNBC.

Energy consulting firm Wood Mackenzie believes that the president-elect could make amend three areas in policy to make offshore drillers profitable at a time when oil prices are low.

The firm noted that energy industry-friendly Trump’s vows to open federal waters to drilling cannot benefit oil drillers in a short term. If Trump-administration allow drilling in federal waters, it could take many years to produce results.

“Under a Trump administration, operators may have a sympathetic ear,” Wood Mackenzie Senior Manager Imran Khan wrote in a research note to clients.

Things Trump Could Do To Help Offshore Drillers

The analyst believes that Trump could help offshore drillers by reducing royalty rates, easing bonding requirements and extending leases.

According to Wood Mackenzie, Trump could reduce the royalty rates that offshore drillers pay the federal government. This could allow them to spend money on drilling more small satellite wells known as tiebacks, which connect to large, deepwater facilities. “Tiebacks allow drillers to use infrastructure that costs billions of dollars and years to construct to incrementally and economically raise output,” according to the CNBC report.

Moreover, the industry-friendly White House could ease requirements on companies owning oil and gas facilities in federal waters. The rules, which were tightened this year, affect the funds committed by drillers to cover the cost of decommissioning facilities in case they are abandoned and left to the government to handle.

Total decommissioning liabilities in the U.S. Outer Continental Shelf now total $40 billion, according to the Bureau of Ocean Energy Management.

Furthermore, Trump could help drillers by extending leasing terms, which require drillers to begin operations in 5 to 10 years. “The two-year price rout has forced companies to concentrate their drilling in only their most economic acreage. Longer lease terms would let them hold onto land they’ve already spent money exploring,” according to the report.

Extending leasing terms could not only help larger players but could also help smaller companies in the Gulf.

This summer, oil and gas companies had cut planned exploration and production spending around the world by $1 trillion, according to Wood Mackenzie.

Source: CNBC