Mr. Erik Milito - The House Committee on Natural Resources ...

January 2012
Energy production on federal lands also has the capacity to contribute large sums of severance and ad valorem taxes
to state and local governments, and substantial revenues to the federal government in the form of federal royalties,
bonuses and leasing payments. <strong>The</strong>refore, policy decisions that impact oil and natural gas development on federal lands
will also impact jobs and government revenues. For the purposes of this Report, future projections of oil and natural
gas development and the associated economic impacts are framed by the following two cases: what would happen
to domestic energy production, job growth and state and federal tax revenues if federal leasing and permitting levels
returned to their 2007/2008 levels as compared to a continuation of 2009/2010 levels into the future
We use regression analysis to measure the relationship between the number of energy leases and permits issued in
a given year and the subsequent production of oil and natural gas from the leases on federal land in succeeding years.
<strong>The</strong> results quantify the economic consequences of more leasing/permitting/drilling and less of the same. <strong>The</strong> estimated
statistical relationship can be applied to various policy cases to evaluate how prospective policies would affect future
production.
Two different cases are analyzed in the modeling exercise: a Baseline Case, which demonstrates the projected effects of
continuing the levels of leasing, permitting and new drilling as seen in 2009/2010; and an Alternative Case, which shows
the energy production, economic, and revenue impacts of returning to the level of leasing, permitting, and new federal
drilling experienced in 2007/2008. <strong>The</strong> Baseline and Alternative Cases are useful in demonstrating the difference that
policy changes can have on future energy production, employment and government tax revenues. <strong>The</strong> compelling feature
of the model is in highlighting the difference, or delta, between a regulatory environment that encourages more leasing,
permitting and new drilling versus the current regulatory climate which is more restrictive.
<strong>The</strong> relevant data in the regression analysis includes information from the BLM regarding the number of leases, permits,
and production on federal lands. Functional form and statistics results are discussed further in the appendix.
Forecasts of production were developed under a “Baseline” and an “Alternative” Case using the following assumptions.
Baseline Case represents the average annual number of leases and permits issued in 2009 and 2010,
(1,060 leases a year and 3,970 permits a year).
Alternative Case represents the average annual total number of leases and permits issued in 2007 and
2008, (1,880 leases a year and 6,450 permits a year).
Projections of future production were pivoted off of 2010 actual production. That is, actual values for dependent variables
(oil production, natural gas production, and number of new wells drilled) for 2010 were used as the basis on which the
projected percent changes were applied. This provided a Baseline and an Alternative estimate of production and drilling
for each of the years 2011 through 2015. <strong>The</strong> Baseline value was subtracted from the Alternative value to provide the
estimated impact, or delta, associated with increased leasing and permitting activity.
19