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Offshore Leasing and Option Value - Comments on BOEM’s 2017-2022 Leasing Program

Policy Integrity recently submitted comments to the Bureau of Ocean Energy Management (BOEM) on its five-year offshore leasing program from 2017-2022. BOEM is charged with stewarding vital and valuable resources for the benefit of the American people. On the one hand, the agency must direct the orderly development of offshore oil and gas deposits; at the same time, the agency must safeguard the ecosystems, cultural assets, and human lives affected by resource extraction decisions, and must preserve competing uses of offshore areas. BOEM thus has a responsibility to ensure the reasonable development of offshore resources so that costs to society are appropriately balanced against the benefits generated. Moreover, BOEM must collect a fair return on any of the American people’s oil and gas reserves that are leased for private development. Finally, the agency must attend to the different effects of offshore development on different regions, ecosystems, and communities.

To prepare a five-year program that responsibly leases offshore deposits and collects fair returns; that realistically estimates the regional distribution of costs (and transparently reports the assumptions relied upon in making those estimates); and that follows best practices for policy analysis as well as legal requirements, we suggest that BOEM should:

  • Quantify the options value of delaying leasing until more information is available on key environmental, social, and technological uncertainties;
  • Weigh options value in decisions on timing and location;
  • Adjust rents and royalties to reflect options value and the environmental and social externalities of resource development; and
  • Make realistic assumptions about the consequences of delaying leases in particular regions.