Federal onshore oil and gas leases awarded through competitive auctions have generated substantially higher production volumes and government revenues in recent years than noncompetitive federal leases, according to new analysis by the U.S. Government Accountability Office (GAO).

royalties

Lease sales are conducted by the Department of the Interior’s Bureau of Land Management (BLM), either via auction with parcels awarded to the highest per-acre bidder, or noncompetitively for an administrative fee if an adequate bid is not received. The minimum bid for competitive leases is $2/acre, with any amount offered above that referred to as a bonus bid.

Tracts of land that do not receive a bid are awarded on a first-come, first-served basis and referred to as noncompetitive.

GAO researchers analyzed revenues generated during the primary term (first 10 years) of leases that began in fiscal years 2003 through 2009 – in other words, revenue generated from 2003 through 2019.

Onshore oil and gas leases on federal acreage generated $16.1 billion in federal revenue during the period, GAO researchers found.

About 72,800 leases awarded through competitive auctions generated some $14.3 billion or 89% of the total, with the remainder coming from about 27,500 noncompetitive leases.

“Average revenues from competitive leases over this time period were nearly three times greater than revenues from noncompetitive leases; about $196,000 and $66,000, respectively,” researchers said. 

They added, “Based on GAO’s analysis of competitive leases that started in fiscal years 2003 through 2009, competitive leases produced oil and gas more often than noncompetitive leases during the leases’ 10-year primary term. 

“Further, competitive leases with high bonus bids (bids above $100 per acre) were more likely to produce oil and gas in their 10-year primary terms than both competitive leases with lower bonus bids and noncompetitive leases.”

Researchers said that about 26% of competitive leases that sold with bonus bids above $100/acre produced oil and gas and generated royalties in their primary term.

This compares to about 2% of competitive leases sold at the minimum bid of $2/acre and about 1% for noncompetitive leases where lessees paid an administrative fee but no bonus bid, researchers said. 

They added that competitive leases with high bonus bids generated over three times more cumulative royalties by the end of their primary term than all other competitive and noncompetitive leases combined.

Researchers also found that the vast majority (about 93%) of competitive and noncompetitive leases did not produce oil and gas in their primary term.

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Federal onshore oil and gas leases generate about $3 billion annually in federal revenues, including royalties, one-time bonus aid payments and rents, according to BLM.

President-elect Joseph R. Biden Jr. has pledged to ban new oil and gas permitting on public lands and waters, and to modify royalties “to account for climate costs,” part of a wider climate agenda that targets net zero emissions from the U.S. economy by 2050. 

Onshore acreage accounted for 69% of natural gas output from federal leases in 2019, while the Gulf of Mexico (GOM) supplied 64% of oil, according to John Thieroff, senior analyst for the Moody’s Investors Service oil and gas team.

The main states impacted by drilling restrictions on federal land would be New Mexico, Wyoming and Colorado, which together accounted for almost 90% of onshore natural gas production from federal leases last year, Thieroff found.