Offshore Oil Companies Must Renegotiate Old Royalty Breaks Before Getting New Gulf Leases

This bill, aptly named the “Stop Giving Big Oil Free Money Act,” is a direct hit on certain legacy contracts for offshore drilling in the Gulf of Mexico. What it does, simply put, is block oil and gas companies from getting any new leases in the Outer Continental Shelf if they currently hold specific older deepwater leases that benefited from special royalty relief—unless they agree to renegotiate those old leases first. The whole point of the renegotiation is to make sure these companies start paying royalties to the government the moment oil or gas prices hit certain price thresholds defined in existing law.

The Royalties-for-New-Leases Bargain

Think of this as the government saying, “You want to expand your business? Fine, but first, let’s talk about those sweetheart deals you’ve been sitting on.” Under Section 2, if a company holds one of these older “covered leases” (which essentially let them skip paying royalties even when prices were high), they are immediately sidelined from the new lease market. They can’t get a single new lease unless they modify all their covered leases to include price-based royalty triggers. This is a big deal because it forces companies to choose between keeping their old, highly favorable terms and expanding their footprint in the Gulf. This restriction applies broadly, catching not only the main leaseholder but also any entity that controls or is controlled by that holder.

No More Easy Transfers

This bill also clamps down on the secondary market for these leases. Section 2 makes it clear that a company can’t buy, sell, or take over any covered lease—or even just a regular Gulf of Mexico lease—unless they have already renegotiated all their own covered leases to include those mandated price thresholds. This prevents companies from skirting the rules by simply selling off their non-compliant assets or acquiring new ones through a shell company. For entities looking to expand by buying up existing operations, this adds a mandatory, potentially expensive, step of compliance.

A Curious Clause for Older Contracts

Section 3 introduces a separate, more nuanced change for a very specific group of leases: those signed between 1996 and 2000 in the Central and Western Gulf. For these, the Secretary of the Interior must agree if the leaseholder asks to amend their contract to include new, potentially lower, price thresholds for when they can suspend royalty payments. While this provision seems like it could benefit the companies by lowering the threshold for relief, it’s important to note two things: first, the new thresholds must still be within the bounds of existing law, and second, any changes made under this section won't actually kick in until October 1, 2026. This delay means the immediate impact is minimal, but it sets up a future negotiation point for these older contracts.