Lid off seas' oil has cost in leases

Lax competition cuts public’s take

The effort by President Donald Trump's administration to open almost all of the U.S. outer continental shelf to drilling has rattled coastal communities fearful of oil-drenched beaches like those after the Deepwater Horizon disaster.

There's another cost, though, borne by the public regarding high-volume, offshore oil and natural gas leasing, even if nothing is spilled. A new analysis Thursday says the federal government -- and therefore U.S. taxpayers -- aren't getting their money's worth from oil and gas companies pumping publicly owned fossil fuels from the seabed in the Gulf of Mexico.

By law, the government is supposed to get "fair market value" for leasing offshore tracts of oil and gas. But the Project on Government Oversight, a government watchdog group, found that companies rarely compete for leases.

As a result, the federal government got less than 3 percent per acre in its most recent lease sales, in August of last year, than it did before 1983, a new analysis by the Project on Government Oversight found. The findings suggest that for years the government has gotten shortchanged when it comes to oil and gas lease sales. As the Trump administration tries to expand offshore drilling, the problem may only get worse.

Here's the rub: That marked decline isn't the result of Trump's policies. It stems all the way back to the administration of President Ronald Reagan.

Before 1983, companies nominated, and the government put up for auction, patches of offshore area, leaving a limited pool of available sections of ocean to lease. But a Reagan-era change, kept by the five subsequent administrations, opened a wide swath of sea to oil and gas leasing in each auction.

The result: The vast majority -- 76.6 percent -- of leases awarded had only one bid, according to the Project on Government Oversight. Because of that lack of competition, "the average price paid per acre in each Gulf of Mexico auction has declined by 95.7 percent, from $9,068 to $391 when comparing leasing in the approximately three decades before and after 1983, the group found.

Consequently, government revenue from lease sales fell:

That 35-year-old decision matters today because the Trump administration is accelerating the sale of oil and gas leases under a system that may not be able to secure the most bang for its buck.

That's especially true at a time of relatively low oil prices.

The latest Interior Department auction in August, during which "all available unleased areas in federal waters of the Gulf of Mexico" were put on the block, bears that out: The federal government got only $235 per acre, or $156 less than the 35-year average.

At the time, oil was trading below $50 per barrel.

At least one government auditor, the Congressional Budget Office, generally concurs with the findings of the Project on Government Oversight. Returning to the tract nomination system would raise federal income by $150 million over 10 years, the Congressional Budget Office found in 2016.

Since Trump took office, Rep. Raul Grijalva of Arizona, the top Democrat on the House Natural Resources Committee, has expressed interest in the old, potentially more profitable leasing system. Last October, Grijalva asked the Government Accountability Office to report on the pros and cons of returning to the pre-1983 method of auctioning.

Business on 02/23/2018

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