Royalty Revenues: Total Revenues Have Not Increased at the Same Pace as Rising Oil and Natural Gas Prices due to Decreasing Production Sold Page: 2 of 15
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Royalty revenue = volume sold x sales price less deductions x royalty rate'
As summarized in table 1 and table 2, the volume of natural gas and oil that was sold
decreased significantly between 2001 and 2005, largely offsetting the impact of
increased sales prices on total royalty revenues.
Table 1: Natural Gas Royalty Statistics for Federal and Native American Lands
Fiscal year Total volume sold Average sales price Average royalty Total
(thousands of received (per rate (less royalty
cubic feet) thousand cubic feet)" deductions) revenues
2001 6,912,002,366 $5.05 0.145124 $5,062,170,355
2005 5,864,705,117 $6.59 0.137267 $5,304,520,628
"Average sale price rounded to nearest cent.
Table 2: Oil Royalty Statistics for Federal and Native American Lands
Fiscal year Total volume sold Average sales price Average royalty Total royalty
(barrels) received (per barrel)" rate (less revenues
2001 699,346,399 $25.27 0.134703 $2,380,264,986
2005 434,142,391 $47.96 0.128498 $2,675,676,653
"Average sales price rounded to nearest cent.
In conducting our work, it was not possible with the available data to precisely
determine how much of the change in total royalty revenues was due to a change in
any one variable, as all three variables were changing over time at varying rates. For
example, during any given month in which royalties are collected, each of the
variables may either rise or fall compared to the previous month. For our analysis,
however, we estimated a variable's contribution to the total dollar change in royalty
revenues for oil and natural gas by assuming that the other two variables changed at a
constant rate. Under this assumption, the total change in that variable from 2001 to
2005 closely approximated the actual change over the period. We also examined the
effects of specific factors, such as hurricanes, on total volumes sold and average
royalty rates. We obtained oil and natural gas data from MMS's financial system for
fiscal years 2001 and 2005 to conduct our independent analysis to more fully explain
the change in both natural gas and oil royalty revenues. We also interviewed MMS
officials at their Lakewood, Colorado, office to solicit their views on why oil and
natural gas royalty revenues did not increase at the same rate as prices between 2001
and 2005. The comparison of royalty revenues between 2001 and 2005 does not
'Companies report to MMS on Form MMS-2014 the volume sold (sales volume), the amount of revenue
received from this sale (sales value), and the royalty revenue due to MMS (royalty value less
allowances). The average sales price is calculated by dividing sales value by sales volume. The
average royalty rate net of allowances is calculated by dividing royalty value less allowances by sales
GAO-06-786R Royalty Revenues
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United States. Government Accountability Office. Royalty Revenues: Total Revenues Have Not Increased at the Same Pace as Rising Oil and Natural Gas Prices due to Decreasing Production Sold, text, June 21, 2006; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc298362/m1/2/: accessed September 23, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.