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Toward an Optimal Oil and Gas Leasing System

Abstract:
The four principal leasing systems-work program, royalty, profit share (including rent resource tax), and bonus bidding are reviewed relative to their efficiency in maximizing and collecting the present value of economic rents. Empirical research is shown to support theoretical conclusions that the most efficient system appears to be bonus bidding, without a fixed royalty, with leases issued in perpetuity, with environmental and other regulations required to pass a benefit/cost test, and with elimination of any nationalistic or other barriers to entry.

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Energy Specializations: Petroleum – Exploration and Production; Petroleum – Policy and Regulation

JEL Codes: D44: Auctions, C70: Game Theory and Bargaining Theory: General, G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, C72: Noncooperative Games, Q35: Hydrocarbon Resources, Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources

Keywords: Opitmal Leasing policy, Oil and gas exploration, US Gulf of Mexico, Bonus bidding

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-1


Published in Volume15, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.