197 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 

Federal Oil and Gas Resources

The DOI is responsible for managing the nation’s oil and natural gas resources and the mineral revenues on federal

lands, both onshore and on the Outer Continental Shelf. This management process can be broken down into six essential

analysis components: pre-leasing, post-leasing and pre-production, production and post-production, revenue collection, fund

disbursement, and compliance.

Federal Oil and Gas Resources as of September 30, 2017, and 2016

(In billions of dollars) Offshore Onshore Total

2017 2016 2017 2016 2017 2016

Oil and lease condensate.................. 23.7 23.7 12.2 12.8 35.9 36.5

Natural gas, wet after lease 

separation........................................ 1.8 2.6 9.3 12.3 11.1 14.9

Total ............................................. 25.5 26.3 21.5 25.1 47.0 51.4

The above table presents the estimated present value of future federal royalty receipts on estimated proved reserves16 as

of September 30, 2017 and 2016. The federal government’s estimated petroleum royalties have as their basis the DOE’s

Energy Information Administration (EIA) estimates of proved reserves. The EIA provides such estimates for federal offshore

areas and they are adjusted to extract the federal subset of onshore proved reserves. The federal proved reserves were then

further adjusted to correspond with the effective date of the actual production for calendar year 2015, the most recently

published EIA proved reserves report and then are projected, separately for oil and natural gas, over time to simulate a

schedule of when the reserves would be produced. Future royalties are then calculated from these production streams by

applying future price estimates by the OMB, and effective royalty rates, adjusted for transportation allowances and other

allowable deductions. The valuation method used for gas captures royalties from three products–dry gas, wet gas, and natural

gas liquids–which collectively are reported as natural gas, wet after lease separation. The present value of these royalties are

then determined by discounting the revenue stream back to the effective date at a public discount rate assumed to be equal to

the OMB’s estimates of future 30-year Treasury bill rates. The 30-year rate was chosen because this maturity life most

closely approximates the productive lives of the proved reserves estimates.

 16 Per the EIA, lease condensate is a mixture consisting primarily of pentanes and heavier hydrocarbons which is recovered as a liquid from natural gas in

lease separation facilities. This category excludes natural gas plant liquids, such as butane and propane, which are recovered at downstream natural gas

processing plants or facilities. Also per the EIA, natural gas, wet after lease separation, is the volume of natural gas remaining after removal of lease

condensate in lease and/or field separation facilities, if any, and after exclusion of nonhydrocarbon gases where they occur in sufficient quantity to render the

gas unmarketable. Natural gas liquids may be recovered from volume of natural gas, wet after lease separation, and at natural gas processing plants

(https://www.eia.gov/naturalgas/data.cfm).
 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 198 

Estimated Federal Oil and Gas Petroleum Royalties (Proved Reserves)

As of September 30, 2017, and 2016

Average Purchase Average Royalty

Quantity (in millions) Price ($) Rate (%)

Petroleum Category 2017 2016 2017 2016 2017 2016

Oil and lease condensate (Bbl):

Offshore ......................................... 4,022.4 4,362.2 46.86 37.77 13.06 13.08 

Onshore ......................................... 2,278.0 2,655.0 45.20 35.79 12.12 12.14 

Total ............................................. 6,300.4 7,017.2

Natural gas, wet after lease 

separation (Mcf):

Offshore ......................................... 5,946.4 7,327.7 3.28 2.43 11.99 11.77 

Onshore ......................................... 39,877.7 44,836.7 3.07 2.31 10.58 9.68 

Total ............................................. 45,824.1 52,164.4

Bbl = barrels

Mcf = 1,000 cubic feet

The table above provides the estimated quantity, a weighted average purchase price, and a weighted average royalty rate

by category of estimated federal petroleum royalties at the end of fiscal year 2017 and 2016.17 The estimated quantities,

average purchase prices and royalty rates vary by region; the above table reflects an overall weighted average purchase price

and royalty rate, and is not presented on a regional basis, but is instead calculated based on regional averages. The prices and

royalty rates are based upon historical (or estimated) averages, excluding prior-period adjustments, if any, and are affected by

such factors as accounting adjustments and transportation allowances, resulting in effective average prices and royalty rates.

Prices are valued at the lease rather than at the market center, and differ from those used to compute the asset estimated

present values, which are forecasted and discounted based upon OMB economic assumptions. For further details on federal

oil and gas resources, refer to the financial statements of DOI. In addition to the oil and gas resources discussed above, the

federal government also owns oil and gas resources that are not currently under lease.

 17 Gulf of Mexico proved reserves are royalty bearing volumes. In the Gulf of Mexico, an additional 689.7 million Bbl for fiscal year 2017 and 884.3 million

Bbl for fiscal year 2016 of proved oil reserves, and 1,180.3 million Mcf for fiscal year 2017 and 1,104.2 million Mcf for fiscal year 2016 of proved gas

reserves are not reflected in these totals as they are estimated to be producible royalty free under various royalty relief provisions. The net present value of

the royalty value of the royalty free proved reserves volumes in the Gulf of Mexico is estimated to be $4.4 billion for fiscal year 2017 and $5.0 billion for

fiscal year 2016.