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Economics of Governance

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28.03.2015 | Original Paper

Drill baby drill? Political influence on federal onshore oil and gas leasing in the Western United States

verfasst von: Karen Maguire

Erschienen in: Economics of Governance | Ausgabe 2/2016

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Abstract

This paper examines the influence of the federal political environment on the number and acres of leases issued for oil and natural gas development on bureau of land management lands in the western United States between 1983 and 2007. Using a fixed effects Tobit model for a 17-state sample of the westernmost states in the contiguous United States, the findings indicate that regulatory shifts played a significant role in determining the type of leasing. In particular, the Federal Onshore Oil and Gas Leasing Reform Act of 1987 led to an increase in competitive leasing and a decline in non-competitive leasing. Unexpectedly, the party and ideology of relevant federal political actors did not consistently have a significant influence on leasing. More conservative U.S. Senate leadership led to increased competitive leasing, but did not have a significant effect on non-competitive leasing. While for the House of Representatives, Democratic alignment, between the U.S. Congressional leadership and the state delegation to the House, led to decreased leasing. The effects of Federal politics on leasing varied by the branch of Congress and the type of lease issued.

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My paper does not directly measure the relationship between bureaucrats and elected political leaders and instead focuses on the role of federal political leadership and the influence that political party and ideology have on the overall political environment.

The western states include Arizona, California, Colorado, Idaho, Kansas, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, and Wyoming.

The period for these statistics is from 1978 through 2008.

Alaska also has significant oil and natural gas reserves; however, given the unique political and resource environment the state is excluded from the analysis. In addition, the LR2000 leasing database maintained by the BLM does not contain information for Alaska and does not contain individual state information for all states, instead there is an aggregate measure for Eastern States.

In addition to leasing on BLM lands, the BLM also issues leases on lands managed by other federal agencies, primarily the U.S. Forest Service. For the analysis, all leases issued on Forest Service lands have been excluded. Future analysis will focus on analyzing potential leasing differences between BLM and Forest Service lands.

In addition, the federal mineral estate includes federal minerals under surface land that is privately owned, but for which the federal government administers the subsurface mineral rights.

Private land leases are not tracked by all states in the sample. For the sample, some leases on private lands have been included where the data did not allow for their exclusion.

Oil and Gas. http://www.blm.gov/wo/st/en/prog/energy/oil_and_gas.html (accessed 05/05/10). Statistics are from 2004.

Prior to 1976, the BLM inherited its mission from the two organizations that preceded it, the General Land Office and the Grazing Service.

FOOGLRA amended the leasing act of 1920, which led to changes in the definition of leasing types and gave the Forest Service the authority to dictate leasing on their lands, among other changes.

Since the energy policy act passed in 1992, both competitive and noncompetitive leases are valid for a minimum of 10 years, and remain valid as long the lease is producing. Prior to the 1992 Act, competitive leases were valid for only five years if not producing.

The leases are sold at competitive auctions that are held quarterly. See Competitive Leasing. http://www.blm.gov/wo/st/en/prog/energy/oil_and_gas/leasing_of_onshore/og_leasing.html (accessed 11/19/2009)

Competitive Leasing. http://www.blm.gov/wo/st/en/prog/energy/oil_and_gas/leasing_of_onshore/og_leasing.html (accessed 11/19/2009)

See Noncompetitive Leasing. http://www.blm.gov/id/st/en/prog/energy/oil_and_gas0/noncompetitive_oil0.html (accessed 04/28/2010)

Leases could be requested by producers and sold without entering the competitive auction process.

For the analysis, the focus is on competitive leases only. After 1987, the influence of politics on leasing is expected to be strongest with competitive leases. These leases represent the point where the BLM determined that the lands would be made available for leasing. After 1987 all noncompetitive leases issued had already been offered for competitive lease by the BLM. The empirical analysis includes an indicator to capture the effects of this significant regulatory change

For drilling operations that are expected to have significant environmental impacts, an Environmental Impact Statement (EIS) is required, while for less significant expected impacts a less stringent environmental assessment (EA) is required.

If approved the permit is valid for two years or until the lease expires. See Environmental Review and Permitting. http://www.blm.gov/wo/st/en/prog/energy/oil_and_gas/leasing_of_onshore/og_permitting.html (accessed 11/19/2009)

The 11 westernmost states geographically make up a subset of the larger 17-state sample. The 11-state sample includes Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming.

The 11 westernmost states or 11 western states refers to the 11 westernmost states in the contiguous United States.

To verify the definition of BLM states based on Nelson’s argument, I used a Probit model to predict the BLM states based on BLM acres and compared the predicted values with the BLM state categorization. The results indicate a clear distinction between BLM states and the other states in the sample.

In addition, appointees to the Secretary of Interior and BLM director posts are approved by the federal legislature.

Lease information was collected from the BLM LR2000 database, which contains all leasing activity tracked by the BLM. Specifically, the “LR2000 provides reports on BLM land and mineral use authorizations for oil, gas, and geothermal leasing, rights-of-ways, coal and other mineral development, land and mineral title, mining claims, withdrawals, classifications, and more on federal lands or on federal mineral estate.” LR2000 database. http://www.blm.gov/lr2000/ (accessed 05/03/10).

I analyzed the number of leases and acres leased to determine if there was a disparate influence on the number or size of the lease. Figure 2 indicates that both leases and acres follow the same trend over this period.

All prices and well costs are real prices, in chained (2000) U.S. dollars, calculated by using gross domestic product price deflators from the EIA.

Proved reserves are included as a dynamic measure of a state’s resource availability. The amount of proved reserves are determined based on the current market conditions. So prices and reserves are expected to be correlated, making the identification of the coefficient on price and/or reserves problematic. I also examine their joint significance.

Data on population density was constructed from area data (http://ga.water.usgs.gov/edu/wetstates.html) and U.S. Census information on annual state population. Data on Sierra Club membership was collected through email (Perry 2010)

Population density is a course proxy for land use pressure, which may influence leasing through state level activity not fully captured by the party and ideology of the federal legislators. Environmental preferences may influence leasing outcomes through state level activity as well and by identifying them separately, I am able to isolate the effect of environmental preferences from the more aggregate party and measures.

See History, Art and Archives, U.S. House of Representatives, Majority Leaders of the House (1899 to present), http://history.house.gov/People/Office/Majority-Leaders/ (02/20/14) and Majority and Minority Leaders and Party Whips, http://senate.gov/artandhistory/history/common/briefing/Majority_Minority_Leaders.htm#4 (07/14/10).

The political party does not vary across committees; however, the ideology score is different for each federal political indicator.

Senate Historical Office, http://senate.gov/artandhistory/history/resources/pdf/CommitteeChairs.pdf (08/02/10).

See http://www.doi.gov/ocl/committees/index.cfm (02/20/2014) for a list of relevant committees.

House Committee on Natural Resources, http://naturalresources.house.gov/about/history.htm (021714).

The variable is constructed as the mean DW-Nominate score for the Republican legislators by state and Congress, each Republican legislator’s score falls between 0 and 1, from least to most conservative. For delegations that are entirely Democratic, the variable is set to zero.

For the Senate, Republican (Democratic) alignment was indicated if the Senate Majority Leader was Republican (Democratic) and the Senate delegation was composed of Republicans (Democrats). For the House of Representatives, Republican (Democratic) alignment was indicated if the House Majority Leader was Republican (Democratic) and the House delegation was majority Republican (Democrat).

Random effects Tobit was also considered, because the fixed effects Tobit specification (Tobit with state indicators) is potentially biased by the incidental parameters problem. Following Greene (2004), while the coefficients are estimated correctly, there is a downward bias in the standard errors. This bias decreases significantly as T increases and because T=25, it is not expected to affect the inference of statistical significance. Also, although RE Tobit is a suggested solution to the bias of the FE Tobit, Greene (2004) demonstrates that the coefficients on continuous variables of interest will be biased under RE Tobit which would make inference of the coefficients on the market factors biased (Greene 2004, pp. 137-143).

The oil and natural gas prices and reserves were not analyzed simultaneously. Oil prices and reserves provided the best fit for the analysis and are included in the results presented below. When natural gas prices are included with oil prices they are not consistently statistically significant individually, but are jointly significant.

Due to multicolinearity issues, each of the political variables was analyzed separately.

The findings for the political variables of interest are unaffected by the exclusion of state level indicators for population density and Sierra Club membership. Results are available upon request.

The SEPW findings diverge from the other political variables of interest, the coefficient indicates an insignificant finding for competitive leases, and a negative and significant effect on non-competitive leases for more conservative federal leadership.

Also, the findings for the alternative dependent variable, acres leased, do not reveal a significant relationship between the federal political leadership and acres of competitive leases issued (Table 16a).

The coefficient on political party in Table 16b indicates that more conservative leadership increases the amount of acres leased, but the finding is not robust across specifications (Tables 10 and 14.)

This finding is robust to the alternative dependent variable, acres leased. Results are available upon request.

The finding regarding Democratic alignment is robust to the specification that includes the alternative dependent variable, acres leased. Results available upon request.

The finding regarding the BLM states interaction is robust to the exclusion of the HR states interactions. The results regarding the HR states interaction alone is also consistent, it remains insignificant if the BLM states interactions are excluded.

The finding is robust to specifications with the alternative dependent variable, competitive acres leased. Results available upon request.

Once again, the coefficient on the SEPW is the only one that is not statistically significant. Also, the average ideology of the state’s Republican delegation is consistently not significant.

This finding is robust to a specification where oil proved reserves are excluded.

The coefficient on the Ideology Score is not consistently significant. Using the alternative dependent variable, acres of non-competitive leases, the finding for HNRC Ideology becomes insignificant and the coefficient on the House Majority Leader Ideology variable remains significant at only the 10 % level. The significance of the BLM states interaction is consistent at the 10 % level for the alternative dependent variable.

There is a positive and significant relationship for BLM*HR states for non-competitive leasing, but it is not robust to the specification with the alternative dependent variable, competitive acres leased (Results available upon request.). Also, it should be noted that the identification of the influence of the office of the President is difficult due to limited variation in the political indicator, which changes at most every four years.

“The Code of Federal Regulations (CFR) is the codification of the general and permanent rules published in the Federal Register by the executive departments and agencies of the Federal Government.” http://www.gpoaccess.gov/cfr/ (accessed 07/14/10).

Due to the correlation between proved reserves and prices, this may be considered a lower bound on the influence of oil prices. When oil reserves are excluded from the analyses, oil prices are statistically significantly associated with an increase in both the probability of non-competitive leasing and the amount of non-competitive leasing. There is not a statistically significant association with competitive leasing.

When statistically significant the findings indicate that a $10 per barrel increase in the wellhead price of oil results in an approximately 5 % increase in the probability of non-competitive leasing. This is an economically significant finding given that the mean price of oil is $25.75 per barrel.

This finding was robust for the number of leases, but did not have a statistically significant relationship with the amount of acres leased for competitive leases.

Given the nature of the competitive leasing auction, that firms are required to suggest a plot of land for leasing in advance and then wait for the quarterly auction and outbid their competitors, a more extensive and time consuming vetting process may be at play. For non-competitive leases, which can be purchased after failing to be sold at auction, there may be a shorter-term decision time frame, making the firms more responsive to price and well costs in their non-competitive leasing decisions. A firm level analysis is required to confirm this supposition, but is beyond the scope of this paper.

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Titel: Drill baby drill? Political influence on federal onshore oil and gas leasing in the Western United States
verfasst von: Karen Maguire
Publikationsdatum: 28.03.2015
Verlag: Springer Berlin Heidelberg
Erschienen in: Economics of Governance / Ausgabe 2/2016
Print ISSN: 1435-6104
Elektronische ISSN: 1435-8131
DOI: https://doi.org/10.1007/s10101-015-0163-z