The Offshore Lease

The problem

Beyond three miles from shore, the seabed belongs to the United States, and what is on it and under it, oil, gas, wind, sand, minerals, and soon carbon storage, is leased to whoever bids. In fiscal 2024 the Office of Natural Resources Revenue disbursed $16.45 billion from energy production on federal lands and waters, the fourth-largest year since 1982; offshore leasing alone contributed more than $7 billion through bonuses, rentals and royalties. The disbursement went, by statute, to a list: $4.29 billion to 33 states, $3.09 billion to the Reclamation Fund, $1.01 billion to the Land and Water Conservation Fund, $1.18 billion to tribes and Indian mineral owners, $150 million to historic preservation, and $6.32 billion to the general fund of the Treasury.

That last number is the one this proposal is about. It is the public's residual from the public's seabed, and it was spent in the year it arrived, as it has been every year since the first offshore lease in 1954. Norway faced the identical question in 1990 with the identical asset and answered it differently: the state's take from the North Sea was deposited, not spent, and the fund it built is now worth about two trillion dollars, or roughly $360,000 for every Norwegian. № 001 argued for the fund; № 065 to № 067 built its rules. The offshore residual is the deposit the fund was designed for, and the one that most resembles the model.

The regime itself is a patchwork. Oil and gas pay royalties that Congress has set at between 12.5 and 16.67 percent under a 2025 law, after a period at 18.75; wind pays a bonus at auction and an operating fee on a different basis; sand and gravel pay by the cubic yard; carbon storage has no settled rule at all. The February 2022 wind auction in the New York Bight raised $4.37 billion, the largest offshore energy sale in the country's history, more than any oil lease sale ever, and the proceeds went to the general fund like the rest. Each resource has its own statute, its own rate, and its own list of who gets what, and none of them treats the shelf as what it is: one estate, held for one owner.

The proposal

The Offshore Lease: one royalty regime for the outer continental shelf. Every resource, oil, gas, wind, minerals, sand and carbon storage, is leased by competitive auction and pays a royalty on the value it produces, at a single published rate of 18.75 percent, with the rate fixed in statute. The states', tribes' and conservation funds' shares continue unchanged and are paid first. The Treasury's residual is deposited in the American Permanent Fund as principal.

How it would work

1. One rate. 18.75 percent of the value produced, the rate offshore oil and gas paid for most of the last two decades, applied to every resource on the shelf. Wind pays it on the electricity sold; a carbon storage lease pays it on the fee charged per ton stored; sand pays it on the value delivered. A resource that cannot bear 18.75 percent is a resource the market will bid less for at auction, which is the auction's job.

1. Auction, always. Every lease by competitive bid, with a reserve, on a published schedule. The offshore programme already does this for oil, gas and wind; the Lease makes it the rule for all of them and forbids the negotiated or noncompetitive lease that has crept into the smaller resources.

1. The list, unchanged. The states' share under the Gulf of Mexico Energy Security Act, raised to $650 million a year through 2034 by the 2025 law, the tribes' share, the Land and Water Conservation Fund's $900 million, the Reclamation Fund, and historic preservation are paid first, exactly as now. The Lease touches nothing that any of them receives. It changes only where the residual goes.

1. The residual, to principal. What remains after the list, about $6 billion in a year like 2024, is deposited in the fund under № 065 to № 067, under the Debt Covenant of № 023: no borrowed dollar enters, and while debt exceeds 90 percent of GDP the fund's earnings go to the debt. The same honest concession applies as in № 068 and № 069: the general fund loses the residual, the deficit is higher by that amount, and the proposal says so.

1. The shelf on the balance sheet. The Acreage Audit of № 071 values the shelf by class: leased acreage at the present value of its royalties, unleased acreage at acquisition cost with its resource estimate noted. For the first time the public will see what the seabed is worth and what it pays.

1. Neutral between resources. The Lease does not decide whether the country should drill or build turbines. It decides that whichever it does, the public is paid the same rent for the same estate, and that the rent is kept. A future Congress that wants more wind or more oil may lease more of it; it may not lease it for less.

The numbers

The residual. $6.32 billion in fiscal 2024, from a total of $16.45 billion. In a year of high oil prices or a large wind sale it is more; in a year of low prices or no sales, less. Over ten years at recent averages, on the order of $50 to $60 billion of principal, and at the fund's index return, roughly double that in twenty.

The Norway comparison. Norway's state take from the North Sea has averaged tens of billions of dollars a year for three decades, and the country has five million people. The American shelf produces less per citizen and the fund will be correspondingly smaller. The point of the comparison is not the size; it is the decision, made once, to deposit rather than spend.

The wind sale. $4.37 billion in one auction in 2022, more than any single oil and gas sale in the programme's history, and evidence that the shelf's value is not only in what is under it.

What the states keep. $4.29 billion in 2024, and the GOMESA share rising to $650 million. The Lease does not ask a single coastal state or parish to give up a dollar, because the Rural Compact of № 036 and the Base Dividend of № 062 make the same argument in the other direction: the host is paid first.

The honest objections

"Diverting the Treasury's share raises the deficit." It does, by the same amount, and № 068 and № 069 made the same concession for the same reason. The residual from a depleting public asset is not income; it is the sale of principal, and a country that spends the proceeds of selling its seabed as if it were tax revenue is consuming its estate. The Debt Covenant's lock means the fund's earnings work on the debt while the debt is high. The reader who weighs the deficit most heavily is asked to weigh, on the other side, what Norway's general fund would be worth today had it spent the North Sea.

"18.75 percent will drive drilling and wind to other countries." The rate was in force for offshore oil and gas from 2007 until 2025, through the largest expansion of Gulf production in history. Offshore wind auctions at zero royalty and a large bonus drew $4.37 billion; the Lease converts some of that bonus into a royalty over time, which the bidders will price. A resource that cannot pay 18.75 percent of its value to the owner of the seabed is a marginal resource, and the auction will say so.

"Wind and oil are different and should not be treated alike." They are different in every way except one: both are private uses of a public estate for private profit, and the estate is owed the same rent for each. A Congress that wants to favour one may lease more of it or subsidise it in the open. A royalty regime that quietly charges one resource less than another is a subsidy nobody voted on.

"The states should get more, not the fund." The states get what the law gives them, first, and the law gave them more in 2025. A state that wants a larger share may ask Congress, in the open; what this proposal ends is the practice of the residual, after every named claimant is paid, vanishing into a general fund that no state or citizen ever sees again.

"Carbon storage has no market and cannot pay a royalty." Then it will lease at a low price and pay 18.75 percent of little, which is fine. What it will not do is lease for nothing under a rule written before anyone had thought about it, which is how the other resources on the shelf were first given away.

Sources

• U.S. Department of the Interior, Interior Department Announces $16.45 Billion in Fiscal Year 2024 Energy Revenue, disbursement by recipient
• Bureau of Ocean Energy Management, Gulf of Mexico Energy Security Act (GOMESA) and the 2025 amendments to revenue sharing and royalty rates; OBBBA Oil and Gas Leasing Program
• U.S. Department of the Interior, Biden-Harris Administration Sets Offshore Energy Records with $4.37 Billion in Winning Bids for Wind Sale, February 2022
• Congressional Research Service, Revenues and Disbursements from Oil and Natural Gas Leases on Onshore Federal Lands (R46537), for the statutory distribution
• Norges Bank Investment Management, history of the Government Pension Fund Global and the 1990 decision to deposit petroleum revenue, nbim.no
• Proposals № 001 (The American Dividend); № 015 (The Spectrum Dividend); № 023 (The Debt Covenant); № 037 (The Hardrock Royalty); № 039 (The Orbital Commons); № 071 (The Acreage Audit)