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Doubts that Washington is getting as much money as it should when it leases land to oil and gas companies go back 40 years. The decades have done little to ease those concerns. In 2013, the Government Accountability Office reported that in the year before, oil and gas companies took in revenues of $66 billion and paid $10 billion to the government. Onshore leases in particular have not kept pace with the times, according to the GAO.
The conservation group Center for Western Priorities took up this banner with an intriguing comparison on its website.
"Oil companies can obtain an acre of public land for less than the price of a Big Mac," the center wrote.
The going price for a Big Mac, without the fries and the drink, is $3.99. We decided to check whether you can lease an acre of federal land for less than that.
Greg Zimmerman, the policy director at the Center for Western Priorities, sent us a link to a September 2014 sales report from the Nevada office of the Bureau of Land Management. The numbers back up Zimmerman’s claim.
Texas-based Appaloosa Energy paid $6,426 for the rights to drill on 3,212 acres. Buena Vista Holdings out of Colorado paid $11,392 for the rights to 5,693 acres.
That comes out to $2 per acre, and even the mathematically challenged can see that is about half the price of a Big Mac. Under BLM regulations, $2 per acre is the minimum possible bid.
Just to be clear, the company pays this money each year for the right to pump oil or gas from the land over a 10-year period. It doesn’t actually own the land, but it has locked down the oil and gas rights.
Zimmerman acknowledges that there is another wrinkle here. There’s an additional $1.50 per acre fee for the first five years. Zimmerman described it as the cost to hold the land while the company assesses what to do with it. A BLM spokesman told PunditFact that the bidder would pay $1.50 per year for the first five years and then $2.00 a year for the next five.
"Nevertheless, even if you add the $1.50 per acre rent to the $2.00 per acre bid, it would still be less than a Big Mac," Zimmerman said.
If the land ever starts producing oil or gas, the company starts paying royalties to the government on top of the $2 per acre leasing fee.
It’s important to note that the statement simply said oil companies can obtain an acre for very little money. It doesn’t say this happens a lot. When we ran the numbers for all of 2014, we found that the average price per acre nationwide was $220. That was for parcels leased through a competitive auction. If a parcel finds no takers through competitive bidding, the government can offer it non-competitively.
One time, that led to a winning bid of about $1.50 per acre.
From what we could find, the lowest lease prices were all in Nevada. Brad Posey is a managing director for Appaloosa Energy, a company that successfully secured the right to a few thousand acres at a cost of $2 each. Posey said the property comes with many hurdles before any wells can be drilled.
"That land has so many restrictions on it," Posey said. "There are the prairie chickens, and habitat. A very limited portion can be explored on."
Posey is correct about the land. A proposed resource management plan for the entire area puts a number of conditions on development. It protects municipal water supplies, grazing areas and trails for off-road trail riding. And animals.
"These areas contain some of the most important habitat remaining for sage-grouse and other at-risk wildlife," the plan said.
Posey called the venture "pure wildcat speculation." This raises the question, if it’s such a long shot, why is the land worth even $2 an acre?
Because, as another Appaloosa managing director Martin Shields explained, sometimes an unpromising bit of land surprises you.
"Many years ago, I was with a company that paid the $2 minimum and it paid off," Shields said.
We asked Zimmerman if he knew of any land that went for $2 an acre that ever produced oil or gas. Zimmerman said he did not know of any case when it did.
The Center for Western Priorities said that oil companies can obtain an acre of public land for less than the price of a Big Mac. A Big Mac goes for $3.99. Thousands of acres of land in Nevada were leased for $2 per acre in 2014. We found one case where federal land went for about $1.50 an acre. The track record on land leased at those low rates ever producing oil or gas is quite poor and the average leasing price nationwide is $220 per acre.
The claim is accurate but it downplays that companies pay a hundred times as much for land that is more likely to be productive.
We rate the claim Mostly True.
Center for Western Priorities, Fair Share campaign, Feb. 5, 2015
Bureau of Land Management, National Oil and Gas Lease Sales, FY2014
Government Accountability Office, Oil and gas resources: Actions Needed for Interior to Better Ensure a Fair Return, December 2013
Bureau of Land Management, Nevada State Office: December 2014 non-competitive oil and gas lease sales results
The Drillings, NVN 092688
Bureau of Land Management, Winnemucca District proposed resource management plan and final environmental impact statement, August 2013
Bureau of Land Management, Questions and answers about oil and gas leasing
Bureau of Land Management, Budget justifications and performance information for FY 2015
U.S. Department of the Interior, Onshore Oil & Gas Lease Sales Garner $256 Million for American Taxpayers in 2011, Jan. 10, 2012
H.R. 3859, Oil and gas leasing inflation adjustment act, Jan. 13, 2014
Government Accountability Office, Oil and gas: Updated Guidance, Increased Coordination, and Comprehensive Data Could Improve BLM's Management and Oversight, May 2014
Government Accountability Office, Onshore oil and gas: BLM's Management of Public Protests to Its Lease Sales Needs Improvement, Aug. 30, 2010
Government Accountability Office, Federal oil and gas leases: Opportunities Exist to Capture Vented and Flared Natural Gas, Which Would Increase Royalty Payments and Reduce Greenhouse Gases, Oct. 29, 2010
Fast Food Menu Prices, McDonald’s prices
Email interview, Ryan Kellogg, associate professor, Department of Economics ,University of Michigan, Feb. 9, 2015
Interview, Robert Porter, professor, Department of Economics, Northwestern University, Feb. 9, 2015
Email interview, Jeff Krauss, chief, division of public affairs, Bureau of Land Management, Feb. 11, 2015
Email interview, Greg Zimmerman, policy director, Center for Western Priorities, Feb. 7, 2015
Interview, Martin L. Shields, managing director, Appaloosa Energy, Feb. 9, 2015
Interview, Brad Posey, managing director, Appaloosa Energy, Feb. 9, 2015
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