It was only a few short months ago when our presidential candidates were bantering on the political stage about oil and natural gas production growth in the U.S. After all, from 2009 to 2012, U.S. crude oil production increased 29% to 6.2 MMBOPD and natural gas production increased 11% to 65.5 Bcf/d. But – was the growth because of, or despite of, the current administration?
On February 28, 2013, a reported titled “U.S. Crude Oil and Natural Gas Production in Federal and Non-Federal Areas” written by Marc Humphries, Specialist in Energy Policy, was published by the Congressional Research Service.
We provide a few bullet points sourced from the report for thoughts on the matter. All date ranges sourced are from 2009 to 2012 unless otherwise noted.
- U.S. crude oil production on non-federal lands increased 31% to 4.6 MMBOPD.
- U.S. crude oil production on federal lands (both onshore and offshore) decreased 6% to 1.6 MMBOPD.
- U.S. natural gas production on non-federal lands increased 25% to 55.3 Bcf/d.
- U.S. natural gas production on federal lands decreased 31% to 10.2 Bcf/d.
Hypothetically, if we apply the 31% growth rate experienced from 2009 to 2012 on non-federal lands to federal land production, and use a 20% royalty for federal offshore production and a 12.5% royalty for federal onshore production, an additional $3.01 billion of revenue from crude oil production would have been generated from federal lands. We used an $82.66 per barrel crude oil price which was the average price during 2009 to 2012.
How much is the government making now?
Sourced from the API website, according to the MMS Department of the Interior’s Minerals Management Service (MMS), now The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), annual revenues from federal onshore and offshore (OCS) mineral leases are one of the federal government’s largest sources of non-tax income. API says in fiscal year 2007, the most recent year for which a complete annual report is available, MMS collected $9.4 billion in oil and gas royalties.
Using a $94.10 per barrel average 2012 WTI crude oil price and $2.75 per MMBtu Henry Hub natural gas price, OAG360 estimates during 2012, the government received $11.9 billion in royalties from oil and natural gas. We used the same 20% royalty for offshore production and 12.5% royalty for onshore production. Bear in mind, this does not include production taxes or non-royalty related income generated from oil and gas activity that the government would receive in addition to royalties.
What percent of Proved Reserves are on Federal Lands?
The natural next question is well where are the majority of proved reserves in the United States? On federal lands or non-federal lands? After all, if there is no oil and natural gas on federal lands, why drill them?
- According to this report, 10.9 billion barrels of proved oil reserves are located on federal lands (both onshore and offshore) equal to approximately 43% of all U.S. crude oil reserves.
- Approximately 28% of U.S. dry gas proved reserves, or 85 Tcf, are located on federal lands (offshore and onshore).
We provided you the link to read the full report in greater detail; however, the author believes development on non-federal lands will continue to outpace federal lands because crude oil development on federal lands takes place in “awholly different regulatory framework than that of oil development on private lands.”
Humphries concludes: “A more efficient permitting process may be an added incentive for the industry to invest in developing federal resources, which may allow for some oil and gas to come onstream sooner, but in general, the regulatory framework for developing resources on federal lands will likely remain more involved and time-consuming than that on private land.”
We’ll close with this statistic: only 24% of the 72.8 million acres of federal acres under lease are producing.
We are blessed to live in a country that supports private enterprise and the ability for non-government controlled companies to grow and prosper on private lands. We only wish our administration would hop on the bandwagon and streamline the federal permitting process and contribute to the growth – not take away from it.
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