CBO Estimates Effects of More Oil & Gas Leasing on Federal Lands

The Congressional Budget Office (CBO) has produced a report on the effects of immediately opening the majority of federal land to oil and gas leasing. Under existing law — which keeps millions of acres out of the leasing process — CBO estimates that the US Treasury will realize gross proceeds of about $150 billion over the next 10 years from all oil and gas leases on public lands.

The CBO looked primarily at two categories of land not now available for leasing:

• Areas that are denied by statute, such as the Arctic National Wildlife Refuge (ANWR)
• Areas both onshore and offshore that are restricted by administrative policy, such as off the East and West Coasts of the US

Leasing revenue for ANWR would generate about $5 billion over the next 10 years, according to CBO, most in the form of bonus payments at the time the leases are auctioned. In order for lease-holders to drill in ANWR would require a change in existing law and the lead time for actually poking holes in the leased areas would be about 10 years. The CBO therefore estimates that royalty revenue from production in ANWR would total $25-$50 billion (in 2010 dollars) in the 12-year period from 2023 to 2035. And royalties for leasing and drilling in ANWR would have to be shared with the state of Alaska at about a 50/50 split. Alaska currently keeps 90% of the bonus payments when leases are sold, but recent proposals to open more area for leasing in Alaska call for a 50/50 split of bonus payments.

The attractiveness of ANWR is that there are an estimated 8 billion barrels of oil in an area of about 1.5 million acres. Other onshore prospects on federal lands include another 8 billion barrels spread across 280 million acres.

Only about 5% of federal onshore land is closed to leasing by statute, and most of that is in national parks and wilderness areas. Another 15% is currently closed by administrative policy. The remaining 80% is available for lease or already leased.

Offshore leasing was mostly closed in 1990 under President George H.W. Bush and further restricted by President Clinton. President George W. Bush narrowed the closed areas in 2008 and President Obama opened up Alaska’s Bristol Bay for leasing in 2010.

The CBO cannot make an informed estimate of either onshore or offshore lease payments and royalties because estimates for the size of the resources are not available. State and local policy, as well as any federal restrictions, complicate the estimating process even more.

A few observations:

• Leasing currently protected federal lands, even if it were to happen in 2013, would produce only a small amount of revenue for the federal government.
• Production royalties would not start until about 10 years after the leases are sold, which provides no immediate relief for federal budget deficits.
• Production royalties at ANWR could total $2-$4 billion a year beginning in 2023, and that total would currently only double if all other federal land were leased and found to be productive.

This much is clear: Expecting fiscal salvation from more leasing and drilling on federal lands is not a way out of the country’s current fiscal hole.

The CBO report is available here.

Paul Ausick