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

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

Research output: Contribution to journalArticlepeer-review

23 Scopus citations

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.

Original languageEnglish
Pages (from-to)23-38
Number of pages16
JournalResource and Energy Economics
Volume46
DOIs
StatePublished - Nov 1 2016

Keywords

  • Mineral rights
  • Natural gas
  • Oil
  • Royalty payments

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