Gas Lease Research Articles

Asymmetric Information in Oil and Gas Lease Auctions with a National Company

This paper analyzes bidding behavior in oil and gas tract auctions in Brazil, where the main winner has been Petrobras, a national company. We test predictions from the theory of common-value, first-price, sealed-bid auctions with asymmetric information. The tests indicate that Petrobras was better informed about tract values than other bidders. We show that Petrobras bid higher than its competitors for more profitable tracts, and that it bid more frequently than its competitors for tracts being re-offered after receiving no bids in previous auctions. We also find evidence that Petrobras could bid competitively in a limited number of auctions only, and we discuss how our results can help to improve oil and gas tract auction rules.

The Beat

The Beat

The Right to Royalty: Pooling and the Capture of Unburdened Interests

The search for oil and gas involves tremendous expense and, traditionally, a vast element of chance. Because of these factors, Texas follows the rule of capture. Under the rule of capture, the one who captures fugitive oil and gas and brings it to the surface owns it. However, problems can arise where mineral interests are undivided or there are prior reservations that fractionalize the royalty ownership.' This paper will examine the law regarding fractionalized royalty interests, how these interests may be captured or burdened by oil and gas leases and other agreements, and the right of the fractionalized royalty owner to receive and share in royalty.

Having Your Cake and Condemning It Too: When Asserting the Power of Eminent Domain Constitutes Breach of an Oil and Gas Lease

The rapid increase in urban drilling for oil and gas in Texas, especially the shale natural gas plays that have become major producers of energy in Texas and other parts of the United States, have created new concerns for surface owners who also own the related minerals. One question is, how can land and mineral owners limit or prohibit surface use while leasing the minerals to producers? The advent of horizontal drilling that permits exploitation of leased minerals from off-site drilling locations prompts this new concern. The following is a scenario that frequently occurs in the current development and production of oil and natural gas, especially where minerals that a landowner leases are associated with a surface that the landowner concurrently uses for residential or commercial purposes.

Environmental effects of oil and gas lease sites in a grassland ecosystem

The northern Great Plains of Saskatchewan is one of the most significantly modified landscapes in Canada. While the majority of anthropogenic disturbances to Saskatchewan’s grasslands are the result of agricultural practices, development of petroleum and natural gas (PNG) resources is of increasing concern for grassland conservation. Although PNG developments require formal assessment and regulatory approval, follow-up and monitoring of the effects of PNG development on grasslands is not common practice. Consequently, the effects of PNG activity on grasslands and the spatial and temporal extent of such impacts are largely unknown. This paper examines the spatial and temporal extent of PNG development infrastructure from 1955 to 2006 in a grassland ecosystem in southwest Saskatchewan. The effects of PNG development on grassland ecology were assessed from measurements of ground cover characteristics, soil properties, and plant community composition at 31sites in the study area. PNG lease sites were found to have low cover of herbaceous plants, club moss (Lycopodiaceae), litter, and shallow organic (Ah) horizons. Lease sites were also characterized by low diversity of desirable grassland plants and low range health values compared to off-lease reference sites. These impacts were amplified at active and highly productive lease sites. Impacts of PNG development persisted for more than 50 years following well site construction, and extended outward 20 m–25 m beyond the direct physical footprint of PNG well infrastructure. These results have significant implications with regard to the current state of monitoring and follow-up of PNG development, and the cumulative effective of PNG activity on grassland ecosystems over space and time.

OBAMA’S ENERGY PLAN STIRS MIXED REACTION

PRESIDENT BARACK OBAMA’S surprise announcement that he plans to open a large swath of coastal waters to offshore drilling for oil and natural gas is a positive step toward a lower cost domestic energy supply, but it doesn’t go far enough, industry officials say. Environmental groups, however, see a threat to pristine waters and beaches from expanded fossil-fuel production. The President’s controversial decision comes as the White House hopes to persuade lawmakers to pass sweeping legislation that would cut greenhouse gas emissions and overhaul the nation’s energy economy. The climate/energy issue could emerge as a major battle in Congress this summer. The Obama Administration’s new oil and gas leasing plan, unveiled on March 31, would lift a decades-old moratorium on offshore drilling along the eastern U.S. coast from Delaware to Florida, in parts of the Gulf of Mexico, and in waters along the north coast of Alaska. But the coastline from New Jersey northward would ...

From the Science Policy Blog

Science Insider reported this week that the U.S. Department of the Interior, which sells the oil and gas leases on the outer continental shelf, announced that the U.S. Geological Survey would carry out a scientific review of drilling in the Chukchi Sea by 1 October, among other stories.

To Drill or Not to Drill: What Constitutes Commencement of Drilling Operations in Pennsylvania

The recent economic viability of the Marcellus Shale formation has brought oil and gas lease issues to the legal spotlight in Pennsylvania. What constitutes Commencement of Drilling Operations in Pennsylvania is a topic in Pennsylvania that has not been fully developed. This paper seeks to analyze current Pennsylvania law on what constitutes Commencement of Drilling Operations. The paper purports to interpret the phrase in manner more consistent with current oil and drilling practices and in line with numerous other states that have dealt with this issue.

Evaluating Split Estates in Oil and Gas Leasing

Taking advantage of randomly assigned federal mineral rights, this paper establishes the discount that mineral developers place on oil and gas leases with divided ownership. Results of 53 bimonthly federal oil and gas lease auctions in Wyoming between February 1998 and October 2006 are examined. Bidders discount split estate by 11% to 14% on average, but by as much as 24% for more expensive leases. Impacts of multiple ownerships and additional leasing stipulations are also explored. This discount is interpreted as an expectation of transaction costs incurred in obtaining surface access, so total costs remain unaffected on average. <i>(JEL D23, Q32)</i>

Recent U.S. offshore oil and gas lease bidding: A progress report

We describe an ongoing research project, in which we examine recent trends in bidding for offshore oil and gas leases, and the exploration and development of leases after they are sold. We review empirical findings regarding bidder participation and bidding for the period 1954 through 1982. In 1983, the MMS adopted Area Wide Leasing (AWL), which dramatically changed the bidding environment. We provide an initial analysis of the post-1982 data, documenting a number of significant changes in behavior and outcomes. Bidding has been much less aggressive recently in comparison with the early years of the leasing program, in terms of both the number of bids submitted and the level of the submitted bids. This descriptive evidence leads to a number of questions, and we discuss a number of changes in the bidding environment since 1982, which may offer partial explanations of the observed changes.

Distribution and Movements of the Teshekpuk Caribou Herd 1990–2005: Prior to Oil and Gas Development

Four caribou (Rangifer tarandus grantii) herds calve on the North Slope of Alaska, three of which have been exposed to little or no resource development. We present 15 years of baseline data on the distribution and movements of 72 satellite-collared and 10 GPS-collared caribou from the Teshekpuk caribou herd (TCH) that have had little to no exposure to oil and gas activities. Fixed-kernel home range analyses of collared caribou revealed that calving grounds were concentrated (i.e., 50% kernel utilization distribution) along the northeastern, eastern, and southeastern shores of Teshekpuk Lake. During the postcalving period, 51% and 35% of caribou moved through two constricted zones to the east and west of Teshekpuk Lake, respectively, and accessed insect-relief habitat along the Beaufort Sea coast. During late summer and early fall, TCH caribou were concentrated to the southeast and southwest of Teshekpuk Lake. Although 65% of the Teshekpuk caribou wintered in two areas on the central coastal plain around the village of Atqasuk and south of Teshekpuk Lake, other TCH animals wintered in a great variety of places, including the Seward Peninsula, the eastern and southern Brooks Range, and the Arctic National Wildlife Refuge. We detected an apparent emigration rate of 6.9%. One male and five female TCH caribou joined the breeding populations of the Western Arctic and Central Arctic herds. TCH caribou traveled an average distance of 2348 ± 190 km annually. Movement rates were at a maximum in midsummer, lowest in winter, and intermediate during spring and fall migrations. Restrictions on oil and gas leasing and surface occupancy have been in place to protect calving, migratory corridors, and insect-relief habitat for the TCH, but these protections are likely to be removed. These data will provide a good baseline that can be used to compare predevelopment distribution and movement patterns of TCH caribou to distribution and movement patterns during and after petroleum development.

Multicriteria Analysis for Disaster Risk Reduction in Virginia, USA: A Policy-Focused Approach to Oil and Gas Drilling in the Outer Continental Shelf

Abstract Multiple Criteria Analysis (MCA) is a collection of methodologies to compare, select, or rank multiple alternatives that typically involve incommensurate attributes. MCA is well-suited for eliciting and modeling the disaster management preferences of stakeholders and for improving the coordination among emergency response agencies, organizations and affected citizens. Many Americans favour new drilling for oil and gas in the Outer Continental Shelf, and a Congressional moratorium on new offshore oil and gas drilling was lifted last year for the first time in three decades. The Facilitator Decision Support System for Multiple Criteria Analysis is used to explore whether it is in the interest of Virginia and the United States to maintain the current offshore exploration schedule. The issue is timely and important, as legislation (H.R. 1696) has been introduced in the 111th US Congress to place regions in the North Atlantic and Mid-Atlantic permanently off-limits to oil and gas leasing and development.

The environmental impact assessment process for oil and gas extraction projects in the Russian Federation: possibilities for improvement

This paper considers how the environmental impact assessment (EIA) process in Russia (OVOS) could benefit from incorporating some of the process and documentary features of European strategic environmental assessment (SEA) and US Environmental Impact Statements respectively. While the strategic level is addressed in the National Environmental Policy Act (NEPA, the USA system of Environmental Assessment) and in the European Directive on SEA implemented in 2004, SEA is not currently undertaken in the Russian system in terms of legislation or practice. The first section of the paper describes the present state of the OVOS process, through presentation of the relevant legislation in Russia, taking into account European Union (EIA and SEA Directives) and US (Policy Act EIS/EA) experiences. In the second section, the Irkutsk case study (an OVOS report for the gas exploration and extraction project in the Irkutsk Region of Russia) is compared with the EIA undertaken for the Cook Inlet oil and gas lease sales in Alaska (planned activities under the considered projects are quite similar) to show differences between the two documents. In the third section the current situation with Irkutsk case study is presented and an example of how SEA tools could be integrated in the report is provided.

Recent U.S. Offshore Oil and Gas Lease Bidding: A Progress Report

This paper describes an ongoing research project, in which we examine recent trends in bidding for offshore oil and gas leases, and the exploration and development of leases after they are sold. We review empirical findings regarding bidder participation and bidding for the period 1954 through 1982. In 1983, the MMS adopted Area Wide Leasing (AWL), which dramatically changed the bidding environment. We provide an initial analysis of the post-1982 data, documenting a number of significant changes in behavior and outcomes. Bidding has been much less aggressive recently in comparison with the early years of the leasing program, in terms of both the number of bids submitted and the level of the submitted bids. This descriptive evidence leads to a number of questions, and we discuss a number of changes in the bidding environment since 1982, which may offer partial explanations of the observed changes.

Bidding rings and the winner's curse

This article extends the theory of legal cartels to affiliated private value and common value environments. We show that efficient collusion is always possible in private value environments, but may not be in common value environments with a binding reserve price. In the latter case, collusion does more than simply transfer rents from the seller to the buyers, it also gives buyers a chance to pool their information prior to trade and make an efficient investment decision. However, full efficiency may not be compatible with information revelation. Buyers with high signals may be better off if no one colludes, leading to inefficient trade. This result provides a possible explanation for the low incidence of joint bidding, especially on marginal tracts, in U.S. federal government offshore oil and gas lease auctions.

Playing the “Wild Card” in the Highstakes Game of Urban Drilling: Unconscionability in the Early Barnett Shale Gas Leases

But what about those who signed leases in the early stages of the Barnett Shale boom? Being uneducated about mineral rights-leasing and unprepared to face negotiations with sophisticated oil and gas companies and landmen, were the early signers of Barnett Shale leases simply the unfortunate pioneers of this unprecedented phenomenon known as "urban leasing?" The early signers of Barnett Shale leases were not privy to the knowledge of how to gain a better bargaining position by organizing their neighborhoods or the benefits of waiting until the competition for their mineral rights heats up before they signed a mineral lease. Are these early signers of Barnett Shale leases simply out of luck? Or is there a legal remedy available to the early signers of Barnett Shale leases that could help even the playing field or rescind a lease and allow early signers a chance to renegotiate? This Comment will explore potential answers to these questions. Part II of this Comment provides background information on the Barnett Shale, including a physical description of the Barnett Shale and why it is such an unusual natural gas play. Part III of this Comment introduces the legal document known as the oil and gas lease and explains what legal rights are created when one signs a lease with an oil and gas company. One cannot expect to understand the legal questions that may arise with Barnett Shale gas leases without first understanding the basics of an oil and gas lease. Part IV of this Comment analyzes the area of contract law known as unconscionability, which may be available to the early signers of Barnett Shale leases who want to rescind, renegotiate, or cancel an oil and gas lease. Finally, Part V of this Comment discusses the lessons that hopefully have been learned from the Barnett Shale urban leasing phenomenon and suggests how other cities may better prepare and protect their citizens when the next Barnett Shale is discovered

A Monitoring and Verification Plan for The Otway CO2 Pilot Project

This article, written by Assistant Technology Editor Karen Bybee, contains highlights of paper OTC 19202, "Developing a Monitoring and Verification Plan With Reference to the Australian Otway CO2 Pilot Project," by Kevin Dodds, SPE, CSIRO, and Sandeep Sharma, SPE, Schlumberger, originally prepared for the 2008 Offshore Technology Conference, Houston, 5–8 May. The paper has not been peer reviewed. The Australian Cooperative Research Center for Greenhouse Gas Technologies (CO2CRC) currently is injecting 100,000 tons of CO2 in a large-scale test of storage technology in a pilot project in southeastern Australia called the CO2CRC Otway Basin Project (Otway). The Otway basin with its natural CO2 accumulations and many depleted gas fields, offers an appropriate site for such a pilot project. An 80% CO2 stream is produced from a well near the depleted gas reservoir used for storage. The goal of this pilot project is to demonstrate that CO2 can be transported and stored underground safely and its behavior tracked and monitored. Introduction The commercial oil and gas leases in the Otway basin in Victoria, selected for the pilot project, are in an undeveloped CO2 field (Buttress), which is the source of CO2, and a depleted gas reservoir (Naylor), which is the injection/containment site. The extracted and separated CO2 stream is transported by pipeline and injected into a new well (CRC-1), drilled downdip of the existing well, and into the depleted Waarre reservoir in the Naylor field at a depth of approximately 2000 m. The existing shut-in production well (Naylor-1) is being used as the monitoring well. Characterization of the site has involved the collection of a large quantity of geological, geophysical, and other regionally relevant data and the construction of static and dynamic reservoir models. The regional formations provide an excellent porous and permeable geological formation that provides a highly suitable reservoir system for CO2 storage. In summary, the site-assessment results, indicating that the Waarre formation is a suitable site for CO2 storage, conclude the following key attributes of the site. There are no significant faults evident in the wells at the Waarre C level; there is a fairly uniform Waarre C thickness. The local and regional seals have contained a number of natural CO2 accumulations in the eastern Otway basin over geological time. The storage reservoir has sufficient porosity and permeability to be able to accept the injected CO2 at forecast rates. The injected CO2 is predicted to move updip from the injector location and migrate to the crest of the fault block and accumulate below the residual-methane gas cap in the vicinity of the existing Naylor-1 well. The selected site has the major advantage of being onshore rather than offshore, allowing the project research teams to test and further refine the monitoring and verification techniques at a more accessible location.

Use of Synthetic Aperture Radar for Selecting Alaskan Lakes for Winter Water Use1

Abstract: Water resources are limited in many areas of the North Slope, Alaska, particularly during winter. Water is used by the oil industry for ice road construction and maintenance, drilling and facility operations, and potable water supplies. The coastal plain between Teshekpuk Lake, in the National Petroleum Reserve‐Alaska (NPR‐A) and the Colville River has numerous shallow lakes, but further south in the northern foothills of the Brooks Range, and east to the Canning River, lakes are fewer. While many oil and gas lease sales have been conducted, or are proposed, access to the leases may be limited because of the lack of available water for ice road construction. Ice roads are the main means by which exploration is conducted in the Arctic, putting a stress on freshwater bodies that do not freeze to the lakebed in winter. Lakes that do not freeze to the lakebed also serve as overwintering habitat for fish. The purpose of this paper is to report on the potential distribution of water bodies that may provide overwinter water in selected areas from Teshekpuk Lake to the Canning River. The project used synthetic aperture radar (SAR) imagery to search for the presence of water in lakes in March 2006. In the Kuparuk and Canning SAR images, 52 and 61% of lakes were frozen to their beds by March 2006, accounting for 49 and 57% of the lake area in these study regions. Conversely, only 2% of the lakes in the Teshekpuk region were frozen to the bottom by March 2006. Unfrozen water was more available because of deeper and more numerous lakes in the Teshekpuk Lake region (west) than in the Canning River area (east). While only specific SAR tiles were analyzed herein, the method will be a useful tool for land managers who seek to evaluate the potential for ice road construction across the Arctic.

Areawide leasing on Alaska's North Slope

North Slope oil and gas leasing on State lands was expanded significantly with the implementation of ‘areawide’ (AW) leasing in 1998. This paper examines the oil industry's response to AW leasing. Under AW leasing, all unleased State lands within a broadly-defined geographic sale area are offered instead of lands in specific locations nominated by industry. In addition, AW leasing introduced greater frequency and regularity in State oil and gas lease sales, and simplified the lease sale authorization process. Fifteen North Slope and Beaufort Sea AW sales have been held since 1998 out of a grand total of fifty North Slope and Beaufort Sea sales since 1964. While the overall number of bids received per leased tract diminished, the participation of independent oil companies increased markedly under AW leasing, possibly in response to inplied lower effective entry costs. Empirical results suggest that the composition of bidding groups is an important determinant of bidding behavior.

Analysis of the Gulf of Mexico’s Veracruz-Havana Route of La Flota de la Nueva España

During colonial times, an active maritime trade existed between Spain and the New World, with convoys sailing annually to and from Mexico and returning via Havana, Cuba, after wintering in America. A database constructed from secondary and open sources revealed that Spanish vessels were sailing over open waters along a northern path near Louisiana and a southern path across the central Gulf of Mexico. These routes were traversed in about one month and scheduling for the convoy was based on an understanding of the Americas’ meteorological and oceanographic climate. However, other factors may also have been involved in the directional layout of the routes. Today these ancient routes crisscross planning areas for oil and gas lease sales in the US Exclusive Economic Zone and the information presented in this article may aid in identifying areas where historic shipwrecks may lie. Maps and documents found during this study helped piece together the evolution of our understanding of the Gulf of Mexico surface circulation and how this knowledge influenced sailing during colonial times.