Timothy Fitzgerald

Evaluating Split Estates in Oil and Gas Leasing

Taking advantage of randomly assigned federal mineral rights, this paper establishes the discount that mineral developers place on oil and gas leases with divided ownership. Results of 53 bimonthly federal oil and gas lease auctions in Wyoming between February 1998 and October 2006 are examined. Bidders discount split estate by 11% to 14% on average, but by as much as 24% for more expensive leases. Impacts of multiple ownerships and additional leasing stipulations are also explored. This discount is interpreted as an expectation of transaction costs incurred in obtaining surface access, so total costs remain unaffected on average. (JEL D23, Q32)

Capturing rents from natural resource abundance: Private royalties from U.S. onshore oil & gas production ☆

We study how much private mineral owners capture geologically-driven advantages in well productivity through a higher royalty rate. Using proprietary data from nearly 1.8 million leases, we estimate that the six major shale plays generated

Tradable Emissions Permits with Offsets

39 billion in private royalties in 2014. There is limited pass-through of resource abundance into royalty rates. A doubling of the ultimate recovery of the average well in a county increases the average royalty rate by 1–2 percentage points (a 6–11 percent increase). Thus, mineral owners benefit from resource abundance primarily through a quantity effect, not through negotiating better lease terms from extraction firms. The low pass-through likely reflects a combination of firms exercising market power in private leasing markets and uncertainty over the value of resource endowments.

U.S. Private Oil and Natural Gas Royalties: Estimates and Policy Considerations

This chapter extends the existing theory of tradable emissions permit markets to allow for tradable permits and offsets. Offsets are currently incorporated into the EU ETS, and in the future similar assets will likely become a feature of many pollution control systems. A model is developed with multiple compliance assets, offset quotas, and different transaction costs across compliance assets. Either offset usage quotas or additional transaction costs associated with surrendering offsets can lead to an equilibrium price difference between permits and offsets, as experienced in the EU ETS. Another result of the chapter shows that offset usage quotas alone cannot explain observed offset behavior in the EU ETS, but combining offset usage quotas with firm-level heterogeneity in transaction costs can be consistent with observed EU ETS behavior. Annual compliance data from Phase I and II of the EU ETS are used to support the consistency of the theory.

Natural Resource Production under Divided Ownership: Evidence from Coalbed Methane

Widespread ownership of oil and natural gas resources by private individuals, which is unique to the United States, entitles those citizens to a share of the proceeds from production. This share is typically specified as a royalty rate in leases with producers that is based on gross revenues from production. To our knowledge, no information regarding the magnitude of private income from this source has been published previously. We develop estimates that partially fill this gap in our knowledge. Focusing on onshore resources in the continental United States, we determine that the share of total oil and natural gas production attributable to privately-owned minerals has been approximately 75 percent in recent years. We then estimate private royalty rates and income. We find that average private royalty rates in recent years were 13.5 percent for oil and 11.8 percent for natural gas and that private royalty income from oil and gas production was

Capturing Rents from Natural Resource Abundance: Private Royalties from U.S. Onshore Oil & Gas Production

21-22 billion in 2011 and 2012. We then consider a number of current policy issues upon which our estimates have bearing. These include exports of liquefied natural gas and crude oil, effects of refinery and pipeline constraints, state and federal tax policy, and regulation of technology.

Can a Legal Horn Trade Save Rhinos

Abstract Divided ownership has been shown to dilute economic incentives in a variety of contexts. Split estate, or severed mineral rights, is a widely-held form of divided ownership and has been a topic of recent policy interest. A natural experiment created by federal mineral ownership established due to forces unrelated to the natural resource being exploited is studied to avoid the endogeneity problems found on private minerals. Using well-level production data from coalbed methane (CBM) wells in Wyoming during the years 1987-2006, wells on federal minerals with private surface are compared to those on federal minerals with federal surface. Delays in development on split estate are found; maximum production is somewhat lower but cumulative production is higher. Some support is found for strategic incentives firms face regarding property rights. The role of the accommodation doctrine in preventing holdup is discussed.

Regulatory Obsolescence Through Technological Change in Oil and Gas Extraction

We study how much private mineral owners capture geologically-driven advantages in well productivity through a higher royalty rate. Using proprietary data from nearly 1.8 million leases, we estimate that the six major shale plays generated

Asset Ownership, Windfalls, and Income: Evidence from Oil and Gas Royalties

39 billion in private royalties in 2014. There is limited pass-through of resource abundance into royalty rates. A doubling of the ultimate recovery of the average well in a county increases the average royalty rate by 1–2 percentage points (a 6–11 percent increase). Thus, mineral owners benefit from resource abundance primarily through a quantity effect, not through negotiating better lease terms from extraction firms. The low pass-through likely reflects a combination of firms exercising market power in private leasing markets and uncertainty over the value of resource endowments.

Frackonomics: Some Economics of Hydraulic Fracturing

The worlds five rhinoceros species remain threatened with extinction in the wild despite a 36 year international trade ban on rhino products. Poachers kill rhinos for their horns, which are sought for medicinal and ornamental purposes in Asia and command remarkably high prices on black markets. Recent attempts to restrict markets for trophy hunts and rhino horn in South Africa were followed by unprecedented increases in poaching levels. This has prompted suggestions to investigate a legal trade alternative. We develop a model of rhino conservation that takes full account of contemporary conditions (markets, institutions, technology, and relevant biological parameters) and establish conditions under which an appropriately structured legal trading regime may prevent the extinction of the white rhino in South Africa. Taking advantage of existing data on rhino populations for calibration, we simulate the bioeconomic model to assess the effects of a legal trade regime. The results indicate that intensive management of rhinos, coupled with a legal outlet for verified horn, would increase rhino numbers while lowering the effective price for horn. Substantial expenditures for protecting live rhinos are required, despite which poaching persists at greatly reduced levels. These results are then brought to bear on the broader debate over rhino policy.