Royalty Rates Applied to Outer Continental Shelf Leases

Oil and natural gas Outer Continental Shelf leases are awarded through sealed bids on the basis of the highest cash bonus with a fixed royalty or on a percentage royalty bid with a fixed cash bonus. The royalty rate has customarily been over 16 percent; some experimenting is now being done with a fixed sliding scale royalty or with a higher royalty rate with no fixed cash bonus. While the lease production information needed to determine the royalties owed the government is routinely collected, the information necessary to make a rate of return evaluation is not. The Securities and Exchange Commission is in the process of developing accounting procedures which will enable the compilation of reliable petroleum exploration and production data.