U.S. Federal Lease - Company Activity

Who owns and operates oil production on U.S. federal leases

U.S. Federal Lease - Company Activity

Introduction

As part of the continuing series on U.S. oil markets, this deep dive provides an analysis on who owns and operates oil production on Federal leases.  The Department of the Interior (DOI) and Bureau of Ocean Energy Management (BOEM) provide datasets that allow us to answer that question.

Prior parts of this inaugural series have included:

  1. U.S. oil supplies
  2. Refining
  3. Onshore federal leases
  4. Offshore federal leases
  5. Oil supply visualization
  6. Oil storage visualization
  7. U.S. oil market infographic

If you missed any of that work it can all be found here.


Methodology

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DOI provides company-level datasets showing royalties paid by calendar year from 2013 to 2021

Using estimated and implied royalty rates, oil revenue on federal leases can be estimated by company

Implied net royalty per barrel and/or estimated oil realization per barrel were utilized to estimate barrels per day produced

Toggle Open For Additional Methodology Commentary

  • Royalty rates on federal leases are 12.5% for onshore leases, 12.5% for offshore leases < 1,000 feet and 18.75% for offshore leases > 1,000 feet
  • DOI data was utilized to estimate a blended royalty rate for all U.S. federal lease oil production
  • Barrels produced per day using the implied net royalty per barrel was compared to summary level production statistics prepared by the DOI, EIA and BOEM to confirm accuracy (within few %)
  • The basis to WTI seems very low; the net royalty paid to the U.S. Government provides for transportation, processing and other allowances, but the discount seems extreme despite the math check confirming relative accuracy
  • The blended royalty rate has come down in recent years as lower royalty onshore production has grown faster than higher royalty deepwater production

Companies Active on U.S. Federal Leases

The distribution of royalty payments by company and year make it clear oil production on federal leases has been dominated by a handful of large companies.

Indeed, if you hover on the largest bubble below you will notice the companies making the 1st and 2nd largest U.S. federal royalty payments since 2013 aren't even U.S. companies, but rather BP and Shell.  

$49 billion in royalties have been paid from oil production on U.S. federal leases since 2013.  Highlighting the top-heavy nature of the producer mix, the top-20 companies since 2013 represent 70% of all oil royalties paid.

Gulf of Mexico Operators

In 2021, BP and Shell operated 42% of all oil production in the Gulf of Mexico, 50% more than the top-3 U.S. companies combined.  Note this does not represent ownership, but rather who operates the assets.  

The top-5 operators in the Gulf of Mexico combined for 71% of 2021 oil production.  Deepwater expertise is concentrated.

Ten years  ago, the top-5 combined for 65% of operational control in the Gulf of Mexico, while Shell and BP represented 37%.  Offshore concentration has increased in recent years through departures and consolidation.

2021 Federal Lease Oil Production

Rather than use the blended royalty rates across all companies, we took the top-50 and estimated each individual royalty rate, then used the implied royalty per barrel to calculate estimated per company production.

Notably, it appears EOG is attempting to make it into the top-2 oil producers from federal leases despite producing all its oil onshore, which suggests it is a large federal lease owner in Lea and Eddy, NM.

Using the average implied net royalty per barrels injects variability into the estimated production.  Not all companies will have the same basis and allowance deductions.  The company level production is directionally correct but should not be considered specifically accurate.

Regardless, we split the top-50 companies out, split into onshore or offshore-focused and compared estimated 2013 oil production to 2021.

 

Additional analysis was done with more granularity into royalties and oil price realizations for similarly-sized Mewbourne (onshore) and Talos (offshore) to highlight the difference in oil production growth profiles.  Onshore and offshore growth rates show similar differences at the aggregate level.

Note that the production numbers shown here do not match prior charts at the company level as a result of using a lower basis to WTI.

Interestingly, 2021 saw a large uptick in the number of companies paying U.S. federal royalties for oil production.  

Company Search:  2021 Federal Lease Oil Production

As noted previously the numbers should be considered estimates.  

The table is searchable for all 354 companies that paid royalties for federal oil production in 2021.

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