Fair Return Report

The Bureau of Land Management (BLM) and the Bureau of Ocean Energy Management (BOEM) are committed to ensuring that the public receives a fair return on publicly owned energy resources. The report, which is linked below, Comparative Assessment of the Federal Oil and Gas Fiscal System, provides useful analysis and tools that will support both agencies in achieving this goal. The report, prepared under contract by IHS-CERA, examines 29 fiscal systems worldwide, including the current systems relating to Federal offshore oil and gas resources and onshore gas resources in Wyoming.

The BLM and BOEM commissioned this study in response to Government Accountability Office (GAO) recommendations outlined in a report titled, Oil and Gas Royalties: The Federal System for Collecting Oil and Gas Revenues Needs Comprehensive Reassessment (GAO-08-691). The GAO recommended that the Department of the Interior periodically collect data and information and conduct “analyses to determine how the federal government take and the attractiveness for oil and gas investors in each federal oil and gas region compare to those of other resource owners.” This study’s emphasis on international comparisons is consistent with the primary focus of the GAO’s recommendations.

A comprehensive analysis of fair return must consider more than a comparison of “government take” or royalty and tax rates. The IHS-CERA study identifies four fiscal-related factors that it suggests are amenable to relative comparisons: government take, internal rate of return, profit-investment ratio, and progressivity. The study also considers measures of revenue risk, as well as an index of fiscal system stability. The report constructs a hypothetical, composite index using all of these measures and concludes that the Federal Government’s fiscal systems and take are generally in the mainstream internationally and nationally. The report also provides an assessment of how changes in the Federal royalty rate for oil and gas production could potentially affect industry interest in Federal offerings, relative to other jurisdictions, based on assumptions that all oil and gas operators can easily substitute among different drilling opportunities.

In the report, IHS-CERA makes certain statements about the “government perspective” that include subjective assumptions and do not necessarily reflect the policies or positions of the BLM and BOEM. IHS-CERA presents the “government perspective” as being in opposition to the industry perspective. However, the government has multiple, diverse objectives that must be balanced. These objectives include collecting a fair return for the use of shared resources, promoting responsible resource and energy development, private investment and employment, energy security, and environmental protection, among other goals. In our view, there is no single criterion for expressing the “government perspective” that is comparable to the industry’s overarching goal of maximizing stockholder value. Each government and regulatory regime identifies and balances its objectives based on a complex set of circumstances and policies, and this balance may change as conditions and policies change over time. These factors must all be weighed when determining value and fair return.

The BLM and BOEM are committed to ensuring that the public receives a fair return on its resources. That determination involves a careful balancing of economic, employment, environmental, and national-security considerations. The BLM and BOEM will use this report and its underlying model as one tool in making future assessments of fair return and decisions regarding fiscal terms for Federal oil and gas leases.