Federal Offshore Oil and Gas Revenues During the COVID-19 Pandemic

link to page 1 link to page 1 link to page 1




Updated September 29, 2020
Federal Offshore Oil and Gas Revenues During the
COVID-19 Pandemic

Since March 2020, the Coronavirus Disease 2019 (COVID-
Because the pandemic began midway through the fiscal
19) pandemic and associated recession have reduced
year, its effects would be less pronounced when comparing
demand for oil and natural gas, resulting in lower prices and
FY2020 to date (October-August) with the same period in
decreased production. These changes affect revenues paid
past fiscal years (Figure 2).
to the federal government from oil and gas leasing on the
U.S. outer continental shelf (OCS). Federal revenues from
Figure 2. Federal Offshore Oil and Gas Revenues for
OCS oil and gas include bonus bids from lease sales, rents
Partial Fiscal Year (October-August), 2016-2020
paid prior to production on leases, royalties collected during
production, and other fees .
A portion of federal offshore oil and gas revenue is shared
with coastal states under the Outer Continental Shelf Lands
Act (OCSLA; 43 U.S.C. §§1331-1356b) and the Gulf of
Mexico Energy Security Act of 2006 (GOMESA; 43 U.S.C.
§1331 note). The revenues also fund multiple federal
programs and contribute to the General Fund of the
Treasury.
Data from the Department of the Interior’s (DOI’s) Office
of Natural Resources Revenue (ONRR) generally show
lower federal offshore oil and gas revenues during April-
August 2020 as compared with the April-August period in
recent years (Figure 1). The April-August data largely

reflect activities in March-July, because royalties—which
Source and Notes: See Figure 1. Al years show October-August.
constitute the majority of revenues—come from sales in the
previous month. Each year’s revenues reflect a mix of
Bonus Bids
factors influencing oil and gas leasing, prices, and
DOI’s Bureau of Ocean Energy Management (BOEM) has
production, and the pandemic is a prominent (though not
held one offshore oil and gas lease sale (Lease Sale #254)
necessarily exclusive) factor in 2020.
during the period in which the United States has been
affected by COVID-19. This sale took place in March 2019
Figure 1. Federal Offshore Oil and Gas Revenues for
for leases in the Gulf of Mexico region. Like other sales in
April Through August, 2016-2020
DOI’s offshore oil and gas leasing program for 2017-2022,
it offered all legally available unleased areas in federal
waters of the Gulf. The sale drew high (winning) bids
totaling $93 million, which compares with high bids of
$159 million (August 2019), $244 million (March 2019),
$178 million (August 2018), $125 million (March 2018),
and $121 million (August 2017) for other Gulf lease sales
in the 2017-2022 program.
BOEM postponed an additional Gulf lease sale (Lease Sale
#256) that had been scheduled for August 2020. BOEM
stated that postponement until November 2020 would allow
the agency to analyze oil and gas market changes stemming
in part from the COVID-19 pandemic.
Rents
Source: ONRR, “Revenue by Month,” at https://revenuedata.doi.gov/
Rental payments, collected annually on active but
downloads/revenue-by-month/. Includes bonuses, rents, royalties, and
nonproducing leases, typically account for a smaller portion
“other revenues” for the commodity categories Oil, Gas, Oil & Gas, and
of total revenues than do royalties or bonuses. Operators
NGL (natural gas liquids). Does not include inspection fees.
pay varying rental rates per acre, based on the water depth
Notes: Royalties reflect sales in the previous month. Bonus payments
of the lease, the age of the lease, and other factors. Rental
may reflect lease sales from earlier months.
rates have not changed in the past five years, but the
https://crsreports.congress.gov

link to page 1 Federal Offshore Oil and Gas Revenues During the COVID-19 Pandemic
number and acreage of nonproducing active offshore leases
State Revenue Shares. Under the OCSLA and GOMESA,
have varied, affecting rental payment totals. For example,
a portion of offshore oil and gas revenue is shared with
in September 2020, BOEM reported 1,702 active but
coastal states. GOMESA provides the majority of shared
nonproducing leases on the OCS, whereas in January 2017,
revenues; 37.5% of revenues from qualified leases (up to a
there were 2,345. For April-August 2020, ONRR reported
specified cap) are shared among Alabama, Louisiana,
offshore rents totaling $55 million, which compares with
Mississippi, and Texas. In 2019, the four states combined
April-August amounts of $66 million for 2019, $68 million
received approximately $215 million under GOMESA. The
for 2018, $67 million for 2017, and $77 million for 2016.
GOMESA revenues are to be used for coastal conservation
and restoration, hurricane protection, and related activities.
Royalties
To the extent that offshore revenues are reduced due to
Royalties constitute the majority of offshore oil and gas
impacts from the COVID-19 pandemic, disbursements to
revenues. The revenues from royalties reflect the royalty
states under GOMESA would decline accordingly. The
rate defined in offshore leases, applied to the oil and gas
severity of these effects on program funding and state
produced from these leases, valued at market prices . While
budgets would depend on the portion of total revenue
offshore royalty rates have been relatively steady, changes
coming from federal disbursements and on other factors.
in oil and gas prices and production cause royalty amounts
To address any effects of COVID-related revenue decreases
to fluctuate regularly. Most recently, effects of the
on state programs, and to augment state funding more
pandemic have reduced oil and gas prices and production,
resulting in lower federal royalty collections.
generally, some have suggested that Congress could amend
GOMESA to provide a higher state percentage share and/or
ONRR’s offshore oil and gas royalty collections for April-
remove the funding cap. Conversely, others might support
August 2020 totaled $915 million, compared with April-
reducing the GOMESA state revenue share to preserve
August royalty collections of $2.109 billion for 2019,
funding for federal programs that also may be affected by
$1.971 billion for 2018, $1.274 billion for 2017, and $1.053
revenue decreases. For further discussion, see CRS Report
billion for 2016. (The totals include royalties on natural gas
R46195, Gulf of Mexico Energy Security Act (GOMESA):
liquids.) The 2020 amount is 57% lower than that for the
Back ground, Status, and Issues.
same months in 2019, 54% lower than 2018, 28% lower
Revenues for Federal Programs. Offshore oil and gas
than 2017, and 13% lower than 2016.
revenues provide most or all of the funding for several
Issues for Congress
federal land conservation and restoration programs,
including the Land and Water Conservation Fund (LWCF;
Royalty Relief for Industry. In response to the financial
54 U.S.C. §§200301 et seq.), the Historic Preservation Fund
difficulties facing the oil and gas industry during the
(HPF; 54 U.S.C. §303102), and the newly established
pandemic, some U.S. oil and gas producers and some
National Parks and Public Land Legacy Restoration Fund
Members of Congress have asked DOI to offer royalty
(LRF; for more information, see CRS In Focus IF11636,
relief on federal oil and gas leases—a temporary reduction
The Great American Outdoors Act, P.L. 116-152).
or waiver of royalties. Some other Members have opposed a
comprehensive royalty relief program for federal oil and
Some have expressed concern about whether FY2020
gas producers. DOI has stated that affected producers may
revenues will be sufficient to fund these programs. The
apply individually for discretionary (“special case”) royalty
HPF and LWCF receive disbursements up to specified
relief using existing processes (30 C.F.R. §203.80),
annual amounts: $150 million for the HPF and, for the
clarifying that DOI is not pursuing a new program of
LWCF, up to $900 million under the LWCF Act and up to
blanket royalty relief in response to the pandemic.
$162.5 million under GOMESA. Given that FY2020
offshore oil and gas revenues have exceeded $3 billion
Some stakeholders have sought measures to make royalty
through August (Figure 2), the FY2020 revenues may be
relief more comprehensive or to expedite the application
sufficient to meet these funding commitments, even after
process. They contend that obtaining royalty relief more
state revenue sharing under GOMESA and the OCSLA.
quickly could help producers avoid having to shut in wells
The LRF is to receive a percentage share of all federal
for financial reasons. Some other stakeholders oppose
energy revenues (from onshore and offshore conventional
broadening or expediting royalty relief during the
and renewable energy) that remain in the Treasury as
pandemic. They note that the OCSLA (43 U.S.C
miscellaneous receipts after other distributions under law.
1337(a)(3)) authorizes royalty relief to promote increased
Based on prior years, the majority of these receipts likely
production, which could be seen as contradictory to the
would come from offshore oil and gas leasing. A decrease
pandemic situation of oversupply. They also argue that the
in offshore revenues in FY2020 stemming from the
federal government needs offshore oil and gas royalties to
COVID-19 pandemic could mean the miscellaneous
fund key state and federal programs. Some bills in the 116th
receipts would be insufficient to allow for the maximum
Congress (e.g., H.R. 6289, H.R. 6707, H.R. 7781, S. 3488,
LRF distribution of $1.9 billion in FY2021. The totals that
S. 3611) would repeal DOI’s authority in the OCSLA to
would be available are as yet uncertain, as is the question of
grant discretionary royalty relief. In contrast, other
how or if the pandemic might affect subsequent years’
legislation (e.g., S. 4041) would mandate offshore royalty
revenues for the LRF.
reductions during the pandemic and would provide other
types of relief to industry, such as authority for lease
Laura B. Comay, Specialist in Natural Resources Policy
extensions and suspensions at the leaseholder’s request.
IF11649


https://crsreports.congress.gov

Federal Offshore Oil and Gas Revenues During the COVID-19 Pandemic


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permissio n of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF11649 · VERSION 3 · UPDATED