Potential Budgetary Effects of Immediately Opening Most Federal Lands to Oil and Gas Leasing

August 9, 2012

The federal government offers private businesses the opportunity to bid on leases for the development of onshore and offshore oil and natural gas resources on federal lands—although not all federally controlled lands are open to leasing now. CBO estimates that, under current laws and policies, the government’s gross proceeds from all federal oil and gas leases on public lands will total about $150 billion over the next decade.

CBO has analyzed a proposal to immediately open most federal lands to oil and gas leasing, which would affect the amounts the federal government collects in various fees and royalties both in the near term and over a longer period.

Which Types of Land Would Be Made Available for Development Under the Proposal?

The proposal would open two categories of federal lands that are now closed to development:

  • Lands where leasing is now statutorily prohibited, notably, the Arctic National Wildlife Refuge (ANWR) and
  • Onshore and offshore areas that are unavailable for leasing under current administrative policies, including sections of the Outer Continental Shelf (OCS)—generally, the submerged lands between 3 miles and 200 miles from the Atlantic, Pacific, and Florida coastlines—and certain onshore areas in which oil and gas leasing is either restricted or temporarily prohibited.

CBO estimates that about 70 percent of undiscovered oil and gas resources are on federal lands that are available for leasing under current laws and administrative policies.

How Much Would the Government Collect from Opening ANWR to Development?

CBO expects that opening ANWR to development would yield about $5 billion in additional receipts over the next 10 years, primarily in the form of bonus payments made by private firms for the opportunity to explore for and develop resources in particular areas. Because extraction is currently prohibited, the receipts from leasing in ANWR could not be realized under current law. Between 50 percent and 90 percent of those receipts would be paid to the state of Alaska, if specifications in the authorizing legislation were similar to those in recent legislation.

The federal government also would collect royalties if oil and natural gas eventually were produced from those lands, but most royalty payments would not be collected until much later because of the long lag between the initial leasing agreement and the time when production begins. According to estimates of potential resources by the Department of Energy’s Energy Information Administration (EIA) and taking into account a range of probable oil prices, gross royalties from leasing in ANWR would probably total between $25 billion and $50 billion (in 2010 dollars) during the 2023–2035 period, or roughly $2 billion to $4 billion a year. (By comparison, CBO estimates that under current law gross receipts from all federal oil and gas leasing activities in 2022 will be about $12 billion, in 2010 dollars.) As with bonus payments, between 50 percent and 90 percent of those receipts would be paid to the state of Alaska, if specifications in the authorizing legislation were similar to those in recent legislation.

The projected royalties from leasing in ANWR are very uncertain, however, as they depend both on the amount of oil that might be produced and on future oil prices.

How Much Would the Government Collect from Opening Other Federal Lands?

CBO anticipates that new legislation directing the Department of the Interior to immediately offer most other federal lands for oil and gas leasing without any restrictions would accelerate the collection of around $2 billion of future leasing receipts into the next decade. Most of that revenue would come from OCS leases; a portion of those proceeds would be shared with state governments.

On the basis of information from EIA, CBO anticipates that production from newly opened areas of the OCS over the 2023–2035 period would be far less than the amounts produced by current operations in the Gulf of Mexico. The California OCS accounts for nearly 80 percent of EIA’s estimate of the potential production from newly opened areas over that period. CBO expects that state and local policies toward resource development will play a major role in determining whether or when those resources are developed.