Optimal Leasing Policy for the Development of Outer Continental Shelf Hydrocarbon Resources

Abstract

The recent formation of a powerful cartel controlling a large portion of the world's oil supply has heightened interest among the developed nations, especially in the United States, in the development of alternative sources of energy. Indeed, the provocation provided by the Organization of Petroleum Exporting Countries (OPEC) will surely hasten the day when much of the world's energy supply will no longer come from fossil fuels, such as coal, oil, and natural gas, but from nuclear power, the sun, and geothermal sources. However, until that day arrives, it is incumbent upon countries such as the United States to exploit efficiently what fossil fuel it has under its political control. Such considerations call attention to the way in which the United States manages its Outer Continental Shelf (OCS) hydrocarbon resources, in particular the hows and whys of U.S. leasing policy in the OCS. The principal questions revolve around the rate of lease offerings and the method of deciding which producer will b given the right to exploit a specific tract. This paper seeks to answer such questions.