NCPA - National Center for Policy Analysis

Time to Increase Domestic Oil Production

May 5, 2011

The various taxes, lease revenues and royalty payments paid to federal, state and local governments for oil and gas production on public lands is a significant source of revenue.  Yet, the Obama administration stubbornly clings to a "no new production in our backyard policy" -- while blaming oil companies for high prices, according to Robert Bluey and H. Sterling Burnett, an adjunct scholar and senior fellow with the National Center for Policy Analysis, respectively.

  • Due to declining production at existing wells and bureaucratic delays on new wells, the federal government is forfeiting revenues of millions of dollars per day.
  • The losses will grow significantly if the federal government does not sell new drilling leases on the outer continental shelf and on other public lands this year.

A lack of new leases means the government will collect less rent. 

  • Offshore leases currently generate more than $200 million in rent payments per year.
  • In addition to lease payments, oil companies pay an 18.75 percent royalty to the federal government on the oil produced.
  • With oil currently trading above $100 a barrel, that equals $4.7 million in lost revenue each day.
  • If the government's own projections are accurate, that would amount to $1.7 billion this year.

Royalties, leases and rent make up a sizable amount of revenue each year. 

  • For example, in 2008, the offshore industry paid $237 million in rent, $8.3 billion in royalties and $9.4 billion for bids on new leases.
  • By comparison, last year those numbers dropped; while rent increased modestly to $245 million, royalties fell by more than half to $4 billion, and lease bids fell by approximately 90 percent to just $979 million.
  • This year, if no leases are offered, lease bids will have fallen from $9.4 billion to zero in just three years.

Source: Robert Bluey and H. Sterling Burnett, "New Oil Production Could Reduce the Deficit: Obama Says No!" Washington Times, May 5, 2011.

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