Mandatory Spending Option

Function 270 - Energy

Impose a Fee on Nonproducing Parcels 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.

As of the end of 2014, only about 17 percent of offshore parcels leased by the federal government were producing oil or gas. Some analysts speculate that firms are not gathering much information about parcels until after they have acquired leases for them. A new fee on nonproducing parcels could encourage firms to gather more information before an auction, to focus on the most promising parcels, and to bid more competitively for those parcels. The effects would be similar to those of an increase in rental rates; in recent years, the Bureau of Ocean Energy Management has raised base rental rates and established rate schedules that increase over the course of a lease to encourage faster exploration and development of parcels, as well as earlier decisions to return parcels that current leaseholders do not plan to explore.

Legislation that established a new fee of $6 per acre on nonproducing parcels would increase net federal income by $500 million over 10 years, CBO estimates. That effect is the net result of increases in income from fees and decreases in income from bonus bids, because the new fee would slightly reduce the amount firms would be willing to bid at auction. The fee’s effects on production would probably be small, because the fee would typically be less than 0.1 percent of the costs of development.