Essays on Split Estate in Energy Development
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Taking advantage of randomly-assigned federal mineral rights, the first essay establishes the discount that mineral developers place on oil and gas leases with divided ownership. This discount is interpreted as an expectation of reduced profits as a result of transaction costs incurred in obtaining surface access. Results of 53 bimonthy federal oil and gas lease auctions in Wyoming between February 1998 and October 2006 are examined. Bidders discount split estate by 11 to 14 percent on average, but by as much as 24 percent for more expensive leases. Impacts of multiple ownerships and additional leasing stipulations are also explored. The second essay examines how conflict between surface and subsurface owners affects production from coalbed methane wells in Wyoming. Using well-level production data from 1987-2006, wells on federal minerals with private surface are compared to those on federal minerals with federal surface. A kernel matching estimator is used to control for selection of well sites on the basis of observable information. Delays in entry on split estate are found, but are not associated with reduced production after entry. Some support is found for strategic incentives firms face regarding property rights. One way coalbed methane production differs from traditional oil and gas extraction is in the large quantities of produced water. Surface discharge has proven to be a low-cost alternative but raises the possibility of externalities. In the third essay a unique dataset linking coalbed methane wells in Wyoming to water disposal permit violations is used to explore differences in environmental performance across severed and unified minerals. A propensity score matching model is used to control for the endogeneity of tenure. The results suggest that split estate wells using surface discharge have a higher number of violations, but the severity of those violations is not significantly different from those on unified estates.