Mandatory Spending Option

Function 270 - Energy

Require Nominations of Parcels to Be Leased for Oil and Gas Development on Offshore Federal Lands

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Starting in 1983, the Bureau of Ocean Energy Management (BOEM) began leasing parcels for offshore oil and gas production through an approach called areawide leasing, which divides all offshore acreage into discrete areas and then makes most parcels within each area available for auction according to the schedule devised in each five-year leasing program. That approach represented a change from a system in which BOEM largely determined which offshore parcels would be made available for leasing. Areawide leasing was adopted as a more efficient way to allow the private market to allocate expenditures for exploration, development, and production across acreage. That change increased the average number of auctioned parcels from 175 offered and 80 leased per auction before 1983 to several thousand offered and 400 leased per auction between 1983 and 2006. The increase in acreage available for auction reduced competition for any single parcel and contributed to decreases in the price of each parcel and in total income from auction bids. Legislation that required BOEM to implement a nomination process to determine which parcels were auctioned, instead of including all parcels under areawide leasing, would probably increase competition for the nominated parcels. In addition, firms would be more likely to bid on nominated parcels because they would assume that such parcels had a higher likelihood of containing oil and gas reserves.

Requiring nomination of offshore parcels could generate an additional $150 million over 10 years in net federal income, CBO estimates, depending on what the legislation required and how BOEM implemented it. CBO’s analysis incorporates an assumption that BOEM would charge a small fee to nominate parcels, which would discourage firms from nominating many parcels as a way of distracting other bidders from their targeted parcels.