Optimal risk sharing and the leasing of natural resources, with application to oil and gas leasing on the OCS

Journal Article · Tue Aug 01 04:00:00 EDT 1978 · Q. J. Econ.; (United States)

DOI:https://doi.org/10.2307/1883152· OSTI ID:6630968

Leland, H E

Future natural resource discoveries will most likely take place on public lands. Rights to potential oil and gas resources are transferred from the public to private firms through a lease; the lease specifies the nature of the rights granted. Federal offshore leases have specified that firms pay a royalty equivalent to one-sixth of the value of production. This royalty has remained unchanged since offshore leasing began, despite the significant changes in the value of tracts as reflected in winning bids. Leases of other countries specify quite-different payment schedules, with profit rather than production often determining the amount to be paid. Clearly, alternative forms of conditional payments have differing implications on risk sharing and on the exploration, development, and production decisions of firms. This paper develops a general theory of optimal lease payments, paying special attention to royalty and profit-share payments, since they are featured prominently in proposals for new Federal leasing policies.

• OSTI ID: 6630968
• Journal Information: Q. J. Econ.; (United States), Journal Name: Q. J. Econ.; (United States) Vol. 92:3; ISSN QJECA
• Country of Publication: United States
• Language: English

Related Subjects

02 PETROLEUM
021000 -- Petroleum-- Legislation & Regulations
03 NATURAL GAS
031000 -- Natural Gas-- Legislation & Regulations
29 ENERGY PLANNING, POLICY, AND ECONOMY
290400* -- Energy Planning & Policy-- Energy Resources
293000 -- Energy Planning & Policy-- Policy
Legislation
& Regulation
294002 -- Energy Planning & Policy-- Petroleum
294003 -- Energy Planning & Policy-- Natural Gas
CAPITAL
COMPETITION
CONTINENTAL SHELF
DECISION MAKING
ECONOMICS
ENERGY SOURCES
FLUIDS
FOSSIL FUELS
FUEL GAS
FUELS
GAS FUELS
GASES
GOVERNMENT POLICIES
LEASES
MARKET
NATURAL GAS
PETROLEUM
PROFITS
PUBLIC LANDS
RESOURCES
RISK ASSESSMENT