How Oil and Gas Leases Work

SMU Law Professor John Lowe and Bernard Weinstein, associate director of SMU's Maguire Energy Institute, talk about President Obama's new energy plan.

President Obama announced Wednesday that he will open parts of the country's coastline to offshore oil and gas drilling. John Lowe, professor of energy law at Southern Methodist University, says how much the states get from the lease depends on the state and where the lease is located.

ROBERT SIEGEL, host:

After yesterday's White House announcement on offshore drilling, we wondered who gets the money from offshore leases - the federal government or the states.

So for the answer to that and other questions, we've called upon law Professor John Lowe of Southern Methodist University. He's the author of "Oil and Gas Law in a Nutshell."

Welcome to the program.

Professor JOHN LOWE (Southern Methodist University):

Thank you very much.

SIEGEL:

And tell me first, if a company bids on a lease to drill offshore and gets the lease, to whom does he pay his rent?

Prof. LOWE:

Well, it depends where that lease is located. We have a fairly complicated structure of federal statutes that basically gives most of the states the right to income from leases within three nautical miles of the edge of their land and then gives them a share of the lease revenues that go to the federal government.

Twenty-seven and a half percent of the revenues that go to the federal government come back to the states for leases that are within another three nautical miles from the edge of the three-nautical mile limit from the shoreline. And then the Gulf Coast states, after Rita and Katrina, cut a special deal and they get 50 percent of the Outer Continental Shelf royalties.