U.S. Private Oil and Natural Gas Royalties: Estimates and Policy Considerations

Abstract

Widespread ownership of oil and natural gas resources by private individuals, which is unique to the United States, entitles those citizens to a share of the proceeds from production. This share is typically specified as a royalty rate in leases with producers that is based on gross revenues from production. To our knowledge, no information regarding the magnitude of private income from this source has been published previously. We develop estimates that partially fill this gap in our knowledge. Focusing on onshore resources in the continental United States, we determine that the share of total oil and natural gas production attributable to privately-owned minerals has been approximately 75 percent in recent years. We then estimate private royalty rates and income. We find that average private royalty rates in recent years were 13.5 percent for oil and 11.8 percent for natural gas and that private royalty income from oil and gas production was $21-22 billion in 2011 and 2012. We then consider a number of current policy issues upon which our estimates have bearing. These include exports of liquefied natural gas and crude oil, effects of refinery and pipeline constraints, state and federal tax policy, and regulation of technology.

Keywords: oil and gas, royalty, mineral rights

JEL Classification: L71, Q35