Capturing rents from natural resource abundance: Private royalties from U.S. onshore oil & gas production

• The largest oil and gas plays generated $39 billion in private royalties in 2014.
• We find limited pass-through of resource abundance into royalty rates.
• Mineral owners benefit from resource abundance primarily through a quantity effect.
• Market power and uncertainty of resource endowments explain limited pass-through.

We study how much private mineral owners capture geologically-driven advantages in well productivity through a higher royalty rate. Using proprietary data from nearly 1.8 million leases, we estimate that the six major shale plays generated $39 billion in private royalties in 2014. There is limited pass-through of resource abundance into royalty rates. A doubling of the ultimate recovery of the average well in a county increases the average royalty rate by 1–2 percentage points (a 6–11 percent increase). Thus, mineral owners benefit from resource abundance primarily through a quantity effect, not through negotiating better lease terms from extraction firms. The low pass-through likely reflects a combination of firms exercising market power in private leasing markets and uncertainty over the value of resource endowments.