The Timing of Oil and Gas Leasing on the Outer Continental Shelf: Theory and Policies

Abstract

Our paper considers three policies in the design of offshore oil and gas lease sales that will help promote an economically efficient program of energy exploration and development on the Outer Continental Shelf. The first policy, having the government select when specific tracts should he offered for lease, involves extensive data requirements and is not practical. The other two policies-setting the royalty rate and stipu-lating a minimum bid level--require far less data and probably promote economic efficiency more effectively. The paper develops a method for calculating the economically efficient royalty rate and minimum bid level given the existing institutional structure of the U.S. offshore leasing program. A case study of the Gulf of Mexico demonstrates the approach.