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A Royalty Revenue Forecast Model for Louisiana

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Abstract

Louisiana receives royalty revenue when minerals are produced on state-owned lands and water bottoms, federal properties within the state, and offshore fields underlying federal and state jurisdiction within 3–6 nautical miles from the coastline. Royalty revenue on oil and gas production has averaged $465 million per year and has contributed 3–7% of the state general revenue over the past decade. The purpose of this article is to develop a royalty revenue forecast model to assist in state budgeting and planning purposes. Producing fields are evaluated within a probabilistic framework to capture the uncertainty associated with future capital outlays and operational changes, and a discovery model is used to generate production from fields expected to be discovered in the future. The forecasts are combined with commodity price scenarios and royalty rate assumptions to generate a royalty revenue outlook for the state. We estimate that cumulative royalty revenue during 2012–2017 will range from $704 million to $1,408 million for oil production and from $286 million to $1,145 million for gas production for commodity prices of 60–120 $/bbl and 2–8 $/Mcf. At $80/bbl and $4/Mcf, cumulative royalty receipts from 2012 to 2017 are estimated at $1,510 million.

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Notes

  1. 1 nautical mile = 6,076 ft (1,852 m); 1 imperial nautical mile = 6,082 ft (1,854 m).

  2. It is a conveyance in that it conveys rights in the underlying minerals to the exploration and production (E&P) company, is usually executed like a deed, and is recorded in the real property records of the county or parish where the land is located. It is a contract because the E&P company makes certain express and implied promises, including the promise to make royalty payments to the landowner.

  3. For example, there are more than 20 state lease forms dating back to 1930 (Newman 2012).

  4. From 1945 to 1977, production data are available in hard copy. For older wells, data may not be available.

  5. Gas plants process natural gas production and strip out the gas liquids for sales. The composite volume of liquid components (ethane, propane, butane, natural gasoline) extracted and fractionated in gas plants are allocated back to the lease and royalty paid on their value. Royalty interest owners collect on the sales receipts of plant products depending on the contractual arrangements between parties.

  6. Oil royalty is due the 25th of the month following disposition; gas and plant products are due the 25th of the second month following disposition.

  7. State leases on the 1930 and later lease forms require the payment of royalty on gas utilized for lease or field operations. The majority of leases under the 1921 lease form do not require royalty on lease or field use gas (Newman 2012).

  8. The use of CGOR = 10,000 cf/bbl as the cut-off between oil and gas field classifications is common, but values ranging from 5,000 to 20,000 cf/bbl have also been applied (Schlumberger 2006).

  9. An area-wide sales offer to the market all available leases that are not held in primary term.

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Authors and Affiliations

  1. Center for Energy Studies, Louisiana State University, Energy Coast & Environment Building, Nicholson Extension Drive, Baton Rouge, LA, 70803, USA

    Mark J. Kaiser, Siddhartha Narra & Yunke Yu

Authors
  1. Mark J. Kaiser
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  2. Siddhartha Narra
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  3. Yunke Yu
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Correspondence to Mark J. Kaiser.

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Kaiser, M.J., Narra, S. & Yu, Y. A Royalty Revenue Forecast Model for Louisiana. Nat Resour Res 22, 59–89 (2013). https://doi.org/10.1007/s11053-012-9194-0

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