Natural resource ownership, financial gains, and governance: The case of unconventional gas development in the UK and the US

Abstract

Who owns an area's natural resources affects the local financial gains from extraction and participation in resource governance. We develop a typology of ownership regimes using two dimensions of ownership, private versus public and local versus absentee, and apply it to unconventional natural gas development in the United Kingdom (UK) and the state of Pennsylvania in the United States. We find that local residents in Pennsylvania own 53% of the acreage leased for development and capture an estimated 8.5% of the value of production of the typical well, more than double what is expected from a well in the UK's public-absentee regime despite revenue-sharing policies. The dollar amount of local payments is also larger in Pennsylvania, with the difference reflecting policies and institutions, not differences in the value of production. The Pennsylvania case provides a benchmark for public-absentee owners considering policies to direct payments to communities hosting extraction: it gives the local payments corresponding to the case where subsurface owners voluntarily negotiate lease terms with energy firms and roughly half of ownership revenues accrue locally.