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

Listed author(s):
  • Brown, Jason P.
  • Fitzgerald, Timothy
  • Weber, Jeremy G.

Innovation-spurred growth in oil and gas production from shale formations led the U.S. to become the global leader in producing oil and natural gas. Because most shale is on private lands, drilling companies must access the resource through private lease contracts that provide a share of the value of production – a royalty – to mineral owners. We investigate the competitiveness of leasing markets by estimating how much mineral owners capture geologically-driven advantages in well productivity through a higher royalty rate. We estimate that the six major shale plays generated $39 billion in private royalties in 2014, however, extraction firms capture most of the benefit from resource abundance, with a doubling of the ultimate recovery of the average well in a county leading to a 2 percentage point increase in the average royalty rate (an 11 percent increase). The low pass-through is consistent with firms exercising market power in private leasing markets.

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File URL: http://purl.umn.edu/205657
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Paper provided by Agricultural and Applied Economics Association & Western Agricultural Economics Association in its series 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California with number 205657.

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Date of creation: 2015
Handle: RePEc:ags:aaea15:205657
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