160 



Leasing of the Continental Shelf 



The number of leases on the Outer Continental Shelf has been increasing at 

 an average rate of about 15 percent per year. On June 30, 1967, there were 954 

 leases, covering 4.15 million acres, in effect on the Outer Continental Shelf. This 

 number is expected to increase rapidly in the next few years since several large 

 offshore lease sales are being planned. Oil companies hold, by far, the greatesit 

 proportion of the leases on the OCS. A few large sulphur companies are con- 

 ducting operations and several combines formed from independent and/or the 

 smaller integrated oil companies are represented in the offshore area. The OCS 

 produces approximately one-half of the oil and gas produced from all Federal 

 lands. 



Mr. RoGEKS. What is the formula for setting of royalties, or is there 

 one? 



Mr. EcKLES. Mr. Chairman, may I explain neither Dr. Cain nor I 

 are actually experts in this particular area, but we have some general 

 information. 



The formula for setting the royalties, as I understand it, is specified 

 in the legislation for the Outer Continental Shelf Act which the 

 Interior Department administers. 



Mr. Rogers. Would you give us an explanation of how this is done 

 for the record ? 



Mr. EcKLEs. Yes, sir. i 



(The information follows :) 



Royalty Formula for Outer Continental Shelf 



The royalty rate for oil and gas production from Federal leases on the OCS 

 is set by the Secretary of the Interior, but can be not less than 121^ percent. The 

 minimum royalty rate is specified by the OCS Lands Act. 



The Secretary of the Interior, with technical and petroleum engineering assist- 

 ance from the U.S. Geological Survey, determines the reasonable royalty rate ta 

 set for production from Federal leases on the OCS. So far, all leases issued by the 

 Federal Government have provided for a 16% percent royalty rate. 



Dr. Cain. I can add, now, it is usually a royalty with competitive 

 bidding on the basis of cash bonus. 



Mr. EcKLES. This is the normal operation in oil and gas. 



Mr. Rogers. It is my understanding from counsel that you have just 

 issued some leases off the west coast at a depth of some 1,500 feet. Is 

 this correct, three of them ? 



Mr. EcKLES. Yes. 



Mr Rogers. Can you give us some explanation on that and how deep 

 you have gone on both coasts and the gulf and the distances ? 



(The information follows :) 



Water De^'ths of Leases Issued 



Three leases have been issued off the coast of Oregon in water depths of ap- 

 proximately 1,500 feet. However, these leases are located only about 31 miles 

 from the coast line in an area of rapidly increasing water depth. These three are, 

 of course, the deepest water locations of any leases on the west coast and are 

 about the farthest from shore for that area. In the Gulf of Mexico, the maximum 

 depth of water in which leases have been issued is about 500 feet. Also, on the 

 Gulf coast, leases have been issued at a distance of slightly over 100 miles from 

 shore. 



Mr. Rogers. Is that beyond the Continental Shelf off the west coast? 

 Dr. Cain. I believe not. 

 Mr. Rogers. In shelf water ? 



