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TECHNICAL SUMMARY

STUDY TITLE: Estimating the Fiscal, Spending, and Profit Impacts of Offshore Oil and Gas Activities

REPORT TITLE(S): Cumulative impacts model and lifecycle impacts model for assessing economic and 

fiscal impacts of offshore oil and gas activities

OCS STUDY NUMBER: 2020-032

NUMBER OF PAGES: 108

CONTRACT NUMBER: M17PC00016

SPONSORING OCS REGION: Gulf of Mexico

APPLICABLE PLANNING AREAS: Eastern Gulf of Mexico, Central Gulf of Mexico, and Western Gulf of 

Mexico

FISCAL YEARS OF PROJECT FUNDING: FY 2017: $399,997.34; FY 2019: $16,995.78

COSTS BY FISCAL YEAR: FY 2017: $0; FY 2018: $178,308.88; FY 2019: $177,000; FY 2020: 

$57,995.78

CUMULATIVE PROJECT COST: $413,299.66

COMPLETION DATE OF REPORT: May 2020

PROJECT MANAGER: Jason Price

AFFILIATION OF PROJECT MANAGER: Industrial Economics, Incorporated

ADDRESS: 2067 Massachusetts Avenue; Cambridge, MA 02140

PRINCIPAL INVESTIGATORS: Not applicable

KEY WORDS: offshore oil and gas, economic impacts, fiscal impacts

BRIEF ABSTRACT: To enhance its capacity for assessing the economic and fiscal impacts of oil and gas 

activities in the Gulf of Mexico (Gulf) Outer Continental Shelf (OCS) region, BOEM developed the 

Cumulative Impacts Model (CIM) and the Lifecycle Impacts Model (LCIM), both of which build upon 

previous economic and financial analysis frameworks developed by the Bureau. The CIM estimates the 

economic and fiscal impacts of all OCS oil and gas activity occurring in the Gulf for the time period 

analyzed, which may be a recent historical year or a forecast period of up to 15 years. In contrast, the 

LCIM estimates the economic impacts and various metrics of financial viability associated with an 

individual lease or group of leases over their entire life cycle. The economic impacts estimated by the two 

models include the output, value added, income, and employment associated with OCS oil and gas 

activity. The estimates of these impacts reflect direct impacts realized by the offshore oil and gas industry, 

as well as spillover effects to other industries. Complementing their estimates of economic impacts, the 

CIM and LCIM also calculate the revenues received by federal, state, and local governments due to OCS 

oil and gas activities. 

BACKGROUND: BOEM is charged with assisting the US Secretary of the Interior in carrying out the 

mandates of the OCS Lands Act (OCSLA), which calls for expedited exploration and development of the 

OCS to “achieve national economic and energy policy goals, assure national security, reduce 

dependence on foreign sources and maintain a favorable balance of payments in world trade.” To assess 

the extent to which its activities support these objectives, BOEM regularly conducts economic and/or 
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socio-economic assessments of the value of OCS oil and gas resources and of the effects of auctioning 

the rights to explore for and develop those resources. For example, when preparing a new National OCS 

Oil and Gas Leasing Program (required at least every five years), BOEM assesses the potential effects 

on output and employment of the activities associated with each proposed five-year schedule of sales 

that the Secretary considers during that multi-year process. Since 2010, BOEM has also developed 

annual estimates of the economic contributions of OCS oil and gas activity for inclusion in the Department 

of the Interior’s Economic Report series. In addition, when BOEM receives bids from prospective lessees, 

the Bureau performs assessments of bid adequacy to ensure that the federal government receives a fair 

return for the lease rights granted and resources conveyed. An important aspect of these assessments is 

an evaluation of the financial viability of a bid, which involves the development of a discounted cash flow 

analysis to estimate various measures of bid adequacy. 

OBJECTIVES: The objective of this study is to develop improved approaches for estimating the 

economic, fiscal, spending, and profit impacts of offshore oil and gas activities in the Gulf. 

METHODS: To estimate the economic impacts associated with industry expenditures, government 

spending, and household spending associated with OCS oil and gas activity, the CIM and LCIM apply 

economic multipliers obtained from the 2017 version of the IMPLAN input-output model. Input-output 

models represent a well-established set of tools designed to assess the economic impacts associated 

with a change in expenditures for one or several industries across multiple sectors of the economy. Using 

detailed data on inter-industry relationships, input-output models estimate how a positive or negative 

shock in one industry (e.g., a change in output) cascades across the broader economy. In addition to 

IMPLAN multipliers, the CIM and LCIM rely extensively on a variety of other data to derive estimates of 

economic and fiscal impacts. For example, the models’ estimation of economic impacts related to industry 

expenditures requires detailed data on the costs of individual OCS oil and gas activities, the distribution of 

expenditures across individual industries, the distribution of these expenditures across geographic areas,

and the distribution of expenditures between labor expenditures and non-labor expenditures. Similarly, 

examples of the data used by the models to capture impacts related to industry profits include corporate 

income tax rates (federal and state), tax rates for dividend income, and the spatial distribution of 

government spending. 

The models’ estimates of fiscal impacts reflect the estimated revenue collected by government as a result 

of OCS oil and gas activity, as well as the allocation of that revenue based on both statutory requirements 

and historical allocation patterns. The specific government revenue streams estimated by both models 

include OCS revenues (i.e., royalties, rents, and bonus bids), federal and state taxes on corporate profits, 

and federal and state taxes on dividend distributions. For OCS revenues, the CIM and LCIM distinguish 

between revenues subject to the revenue-sharing provisions of the Gulf of Mexico Energy Security Act 

(GOMESA) and section 8(g) of OCSLA and revenues not subject to these provisions. The models 

allocate 8(g) and GOMESA revenues to individual states or (in the case of GOMESA revenues) coastal 

political subdivisions pursuant to the requirements of each statute. The models allocate other revenue 

collected by the federal government based on historical allocations. Similarly, for states in the Gulf region, 

the CIM and LCIM allocate revenue collected by states (i.e., state corporate income taxes and dividend 

taxes) based on the recent allocation in each state. Revenues collected by other states are modeled at 

the state level only.

Based on the revenues and costs projected for a user-defined scenario, the LCIM also assesses the 

financial viability of the lease or leases under examination for that scenario, measured in terms of the net 

present value (NPV) of cash flows and the payback period. NPV reflects revenue from the sale of any oil 

and gas produced on the lease and all capital costs and operation and maintenance (O&M) costs 

incurred by the lease holder(s), including payments made to the government for royalties, bonuses, and 

rents. The payback period represents the length of time for a lease (or group of leases) to recover the 

costs incurred by the lease holder(s). Combined, these metrics allow BOEM to evaluate whether the 

modeled investments for a lease (or group of leases) appear financially viable and add value to the lease 

holder(s).
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The CIM and LCIM were both developed in Microsoft® Access® and rely on Visual Basic® programming 

for much of their functionality. Both models include an intuitive user interface and several standard reports 

that contain varying levels of detail on the economic and fiscal impacts associated with a user-defined 

scenario.

RESULTS: Industrial Economics (IEc) completed fully functioning versions of the CIM and LCIM for this 

project. To facilitate the use of both models, IEc provided BOEM with scenario input templates into which 

BOEM personnel can enter scenario-specific input data to be used in both models.

CONCLUSIONS: The economic and fiscal impacts of OCS oil and gas activity depend on a multitude of 

factors that may vary significantly between scenarios or over time within a scenario. The CIM and LCIM 

provide a systematic framework that accounts for these factors, enabling BOEM to estimate economic 

and fiscal impacts consistently across scenarios and over time. The outputs generated by these models 

will provide BOEM with a more complete picture of the economic and fiscal impacts of OCS oil and gas 

activity for the BOEM’s future analyses.

STUDY PRODUCTS: 

1. Industrial Economics, Inc. Cumulative Impacts Model, March 25, 2019.

2. Industrial Economics, Inc. Lifecycle Impacts Model, August 2, 2019.

3. Price JC, Ewen MD, Isom J, Ebersole J, Lehr J. 2020. Cumulative impacts model and lifecycle 

impacts model for the assessment of economic and fiscal impacts of offshore oil and gas 

activities. New Orleans (LA): US Department of the Interior, Bureau of Ocean Energy 

Management. 108 p. Contract No.: M17PC00016. Report No.: OCS Study BOEM 2020-032.