TAX CONFERENCE

The recently enacted "American Jobs Creation Act" gives significant tax breaks to a number of U.S. industries--including shipping.

MARINE LOG and BLANK ROME will present a senior level seminar CHANGES IN U.S. TAXATION OF SHIPPING INCOME in Stamford, Conn. on April 5 & 6, 2004

Make sure you know how the new tax rules work!


March 17, 2005

"Robust" Gulf lease sale bidding

Near record oil and gas prices led to robust bidding in two offshore federal lease sales conducted yesterday by the Minerals Management Service. However, in an effort to persuade successful bidders to actually drill on leased acreage, the agency is considering new rules for future lease sales that would progressively raise the rentals on the acreage after five years if no activity took place.

Yesterday's Central Gulf of Mexico Lease Sale 194, brought in $353,961,798 in high bids from 80 companies for oil and natural gas leases. The total of all bids was $540,254,193.

Eastern Gulf of Mexico Lease Sale 197 "exceeded expectations," resulting in $6,974,531 in total bids.

The sales, held in New Orleans, were conducted by the U.S. Department of the Interior's Minerals Management Service.

In the Central Gulf sale, the agency received 651 bids on 428 tracts.

In this sale, 4,063 tracts comprising approximately 21.4 million acres offshore Alabama, Louisiana, and Mississippi were offered.

In the Eastern Gulf sale, the agency received 12 bids on 12 tracts. The lease sale area encompasses the unleased blocks in a section of the Eastern Gulf of Mexico outer continental shelf planning area. The area is directly south of Alabama. These 124 unleased blocks cover more than 714,240 acres and are located from 100 to 196 miles offshore in water depths of 1,600 to more than 3,425 meters. Estimates of undiscovered economically recoverable hydrocarbons in this lease range from 65 to 85 million barrels of oil and 0.265 to 0.34 trillion cubic feet of natural gas.

"We are excited about the outcome of these lease sales and look forward to the enhanced oil and gas opportunities associated with the sales," Scarlett said.

While interest in deep water continues, the large number of tracts receiving bids in shallow water is of particular note.

"We believe this reflects definite industry interest in deep gas in shallow waters, as well as deep water oil and gas production in response to royalty relief offered by MMS," MMS Director Johnnie Burton explained.

Central Gulf Lease Sale 194

The highest bid received on a block was $21,157,755, submitted by Stone Energy Corporation and Dominion Exploration & Production, Inc. for West Cameron Area Block 132.

The second highest bid received was $ 20,153,300, submitted by Murphy Exploration & Production Company--USA, Dominion Exploration & Production, Inc, Pioneer Natural Resources USA, Inc. and Spinnaker Exploration Company, L.L.C. for Mississippi Canyon Block 819.

Each of the high bids on a block will now go through an evaluation process to ensure the public receives fair market value before a lease is awarded.

Eastern Gulf Lease Sale 197

The highest bid received on a block was $ 2,037,379, submitted by Helis Oil & Gas Company, L.L.C., Houston Energy, L.P., and Red Willow Offshore, L.L.C. for Lloyd Ridge Block 272. The second highest bid received was $ 1,566,000, submitted by Spinnaker Exploration Company, L.L.C. and Dominion Exploration & Production, Inc. for De Soto Canyon Block 797.

Each of the high bids on a block will now go through an evaluation process before a lease is awarded.

NEW SLIDING SCALE RENTALS

Meantime, for future Gulf of Mexico lease sales, the Minerals Management Service is proposing to increase to base level rentals is considering the use of sliding scale rentals in future Gulf of Mexico lease sales.

The Administration's FY 2006 Budget submission called on MMS to increase the base level for rentals. The current base rates are $5.00 per acre or fraction thereof for blocks in water depths of less than 200 meters and $7.50 per acre or fraction thereof for blocks in water depths of 200 meters or greater. These rates were last adjusted in 1993 for the shallow water depth and in 1996 for the deeper water depth.

For future lease sales for the GOM, MMS is proposing to raise these base levels to approximately $6.25 per acre or fraction thereof for blocks in water depths of less than 200 meters and $9.50 per acre or fraction thereof for blocks in water depths of 200 meters or greater. These increased rental rates mostly reflect inflationary adjustments

MMS is also considering using a sliding scale structure for blocks in water depths of 400 meters or greater, where royalty relief is typically offered.

Since implementation of the Deep Water Royalty Relief Act in 1996, the increase in the pace of leasing has been about twice as high as the increase in the pace of exploration. Use of a sliding scale rental system is designed to encourage exploration in deepwater areas earlier in the lease term.

MMS is looking at a sliding scale where rentals would go from $9.50 an acre annually in the first five years, then rise in increments to $17.50 an acre in the tenth year.

Under this proposal, if a lease is drilled within the first five years of its initial period, escalating rentals can be avoided through either a discovery or through relinquishment. In the case of a discovery during the first five years, the rental rate would remain at $9.50 until the start of royalty-bearing production. If exploration is unsuccessful, or no discovery is made, the lease may be relinquished.

For discoveries made after the first five years of the primary term of the lease, the escalating rental rates would return to the level that prevailed during the first five-year period.

MMS requests comments on both the increase to a new base level of rentals for all water depths, and the structure of the escalating rental rates that MMS is considering for water depths 400 meters or greater and their possible effects on acquisition and exploration decisions.

The comment period closes on April 1, 2005. For details on how to submit comments go to the MMS web page at http://www.mms.gov

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