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Letter to the Honorable Ron Wyden 1 (March 2006)

handle is hein.congrec/cbo8852 and id is 1 raw text is: CONGRESSIONAL BUDGT OFFICE U .S. Congress ashington, DC 20515 March 15, 2006 Honorable Ron Wyden United States Senate Washington, DC 20510 Dear Senator: At our meeting on March 7, 2006, you requested more information about how the Congressional Budget Office (CBO) estimates the cost of legislative proposals involving oil and gas leases on federal land. Specifically, you asked CBO to contrast the budgetary effects of legislation to amend the terms of future oil and gas leases on federal lands, such as S. 2314, the Royalty Relief Act of 2006, with the estimated effects of the Administration's 2007 budget proposal to allow oil and gas leasing in the Arctic National Wildlife Refuge (ANWR). CBO's general approach to such legislative proposals is to evaluate how they would increase or decrease federal receipts relative to CBO's baseline estimates of receipts under current laws and policies. Income from Federal Oil and Gas Leasing Programs The Department of the Interior (DOI) administers oil and gas leasing programs on federal land, including submerged lands on the Outer Continental Shelf (OCS). Those programs generate three types of income from lessees: bonus bids, rental payments, and royalties. Oil and gas companies compete for leases through a process of sealed bidding. Each lease is awarded to the bidder that offers the highest bid. The bid, known as a bonus bid, is paid up front for the lease at the time of sale, regardless of whether the property ever produces any oil or gas. After securing a lease, the lessee pays annual rent until production begins, at which time royalties are due. Royalties are collected by the government from the lessee as a fixed percentage of the net value of oil and gas produced from the leased area. The terms of the lease typically specify the royalty rate that applies to future production from that area (on average, about 15 percent for OCS gas leases), as well as conditions under which the lessee may qualify for a lower royalty payment to the federal government (known as royalty relief).

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