Selectively Reducing Offshore Royalty Rates in the Gulf of Mexico Could Increase Oil Production and Federal Government Revenue

Gao ID: RCED-85-6 May 10, 1985

Pursuant to a congressional request, GAO examined steps the federal government could take to encourage environmentally sound enhanced oil recoveries (EOR) in the Outer Continental Shelf OCS of the Gulf of Mexico.

GAO found that the federal government leases large areas in the Gulf of Mexico for the development of oil resources and receives financial royalties on the oil produced. It was estimated that conventional methods could only recover about half of the 16 billion barrels of oil in the area, but EOR methods could recover an additional 1 billion barrels although it may be less economically feasible. GAO found that the government could lose revenue if it provided incentives for all companies across-the-board; however, royalty reductions used as incentives could increase government revenue, if timely evaluated on a project-by-project basis, because the oil would not have otherwise been produced. GAO noted that the environmental impacts associated with EOR appeared to be minimal.


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