CONFLICTS AMONG COMPETING RESOURCE USERS: JUXTAPOSING THE LEASING OF WATER BOTTOMS FOR OYSTER PRODUCTION WITH OIL-AND-GAS ACTIVITIES
The Louisiana oyster industry sharply increased its leasing of state water bottoms over the past 50 years. Because of implicit and explicit property rights associated with these leases, conflicts between the oyster industry and other coastal resource users - in particular, oil-and-gas companies and entities engaged in coastal restoration activities - have also increased. Understanding and mitigating these conflicts depends on knowledge of the economic incentives influencing the oyster industry and others that lease water bottoms from the state. At the extreme, nominal lease fees and the potential to generate lease-based income from non-harvest sources can lead to speculative leasing that might be socially inefficient given competing resource uses. This project estimated the speculative value of oyster leases in Louisiana and compared it to the producing value of oyster leases.
Data was collected on the past compensation (2003-2006) paid by oil-and-gas companies to oyster lease holders. Information was also collected on the past productivity of oyster leases, with emphasis on the magnitudes of the harvest and prices received. Revenues generated from compensation payments and revenues generated from harvesting activities were then estimated in aggregate and by temporal and spatial categories. Finally, an analysis of how potential changes in lease fee payments to the state might affect the oyster harvesting industry and the economic incentives to hold leases for speculative purposes was considered.
Results indicated that the speculative value of leases is at least equal to the production and harvesting value of leases. Gross income to lease holders from oil and gas activities was estimated to be from $10.1 million to $14.79 million per year. Given leased acreage of approximately 392,000 acres and rental fees of $2.00 per acre at the time of the study, these gross revenues translate into approximate net revenues in the range of $24 per acre to $36 per acre. Over the same time period, net revenues to fixed costs for oyster production and harvesting were estimated to be approximately $31 per acre. Including fixed costs, for which little data was available, into the calculations would result in oyster leases generating the majority of their net income from non-oyster producing activities. Furthermore, the analysis suggests that the compensation revenue flows to leases irrespective of their ability to produce marketable oysters, perhaps explaining why leasing activity occurs even in areas of non-producing water bottoms. Thus, the state could potentially reduce resource use conflicts by either significantly raising lease rental rates or instituting a bid auction system for lease rentals. Either of these approaches would tend to remove unproductive leases from private ownership and/or allow alternative resource users to purchase the lease rights, thereby reducing the opportunity for conflicts.
Data was collected on the past compensation (2003-2006) paid by oil-and-gas companies to oyster lease holders. Information was also collected on the past productivity of oyster leases, with emphasis on the magnitudes of the harvest and prices received. Revenues generated from compensation payments and revenues generated from harvesting activities were then estimated in aggregate and by temporal and spatial categories. Finally, an analysis of how potential changes in lease fee payments to the state might affect the oyster harvesting industry and the economic incentives to hold leases for speculative purposes was considered.
Results indicated that the speculative value of leases is at least equal to the production and harvesting value of leases. Gross income to lease holders from oil and gas activities was estimated to be from $10.1 million to $14.79 million per year. Given leased acreage of approximately 392,000 acres and rental fees of $2.00 per acre at the time of the study, these gross revenues translate into approximate net revenues in the range of $24 per acre to $36 per acre. Over the same time period, net revenues to fixed costs for oyster production and harvesting were estimated to be approximately $31 per acre. Including fixed costs, for which little data was available, into the calculations would result in oyster leases generating the majority of their net income from non-oyster producing activities. Furthermore, the analysis suggests that the compensation revenue flows to leases irrespective of their ability to produce marketable oysters, perhaps explaining why leasing activity occurs even in areas of non-producing water bottoms. Thus, the state could potentially reduce resource use conflicts by either significantly raising lease rental rates or instituting a bid auction system for lease rentals. Either of these approaches would tend to remove unproductive leases from private ownership and/or allow alternative resource users to purchase the lease rights, thereby reducing the opportunity for conflicts.