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

Author

Listed:
  • Brown, Jason P.
  • Fitzgerald, Timothy
  • Weber, Jeremy G.

Abstract

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.

Suggested Citation

  • Brown, Jason P. & Fitzgerald, Timothy & Weber, Jeremy G., 2015. "Capturing Rents from Natural Resource Abundance: Private Royalties from U.S. Onshore Oil & Gas Production," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205657, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea15:205657
    DOI: 10.22004/ag.econ.205657
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    File URL: http://ageconsearch.umn.edu/record/205657/files/royalties_manuscript_ageconsearch2.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Community/Rural/Urban Development; Environmental Economics and Policy; Resource /Energy Economics and Policy;

    JEL classification:

    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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