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Capturing rents from natural resource abundance: Private royalties from U.S. onshore oil & gas production

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  • Brown, Jason P.
  • Fitzgerald, Timothy
  • Weber, Jeremy G.

Abstract

We study how much private mineral owners capture geologically-driven advantages in well productivity through a higher royalty rate. Using proprietary data from nearly 1.8 million leases, we estimate that the six major shale plays generated $39 billion in private royalties in 2014. There is limited pass-through of resource abundance into royalty rates. A doubling of the ultimate recovery of the average well in a county increases the average royalty rate by 1–2 percentage points (a 6–11 percent increase). Thus, mineral owners benefit from resource abundance primarily through a quantity effect, not through negotiating better lease terms from extraction firms. The low pass-through likely reflects a combination of firms exercising market power in private leasing markets and uncertainty over the value of resource endowments.

Suggested Citation

  • Brown, Jason P. & Fitzgerald, Timothy & Weber, Jeremy G., 2016. "Capturing rents from natural resource abundance: Private royalties from U.S. onshore oil & gas production," Resource and Energy Economics, Elsevier, vol. 46(C), pages 23-38.
    • Handle: RePEc:eee:resene:v:46:y:2016:i:c:p:23-38
    DOI: 10.1016/j.reseneeco.2016.07.003
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    More about this item

    Keywords

    Royalty payments; Oil; Natural gas; Mineral rights;
    All these keywords.

    JEL classification:

    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources

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