Mason Testifies Before U.S. Senate Committee on BOEM Program

Professor Joseph Mason

Professor Joseph Mason

May 19, 2016

BATON ROUGE – On Thursday, LSU Finance Professor Joseph Mason testified in Washington, D.C. before the U.S. Senate Committee on Energy and Natural Resources on the Bureau of Ocean Energy Management’s 2017-2022 OCS Oil and Gas Leasing Program.

Overall, the program plans to cut leasing in the Arctic and Atlantic Oceans, as well as the Gulf of Mexico. Mason said that this strategy is viewed as a cutback by industry but he disagrees.

“I am of the opinion that the current environment is one in which the BOEM has the opportunity to lease more, not less, in a favorable market environment and create economic output and with it, jobs, income, and state and local tax revenues that can assist the economic development of communities in the Gulf of Mexico region,” Mason testified.

In fact, Mason testified that, using methods applied in previous studies, the BOEM’s plan would contribute roughly $457 million to $747 million in gross domestic product (GDP) to the Gulf states, create 1,604 to 2,567 jobs for the duration of seven years, contribute wages of roughly $91 million to $146 million to the region, and result in state and local tax revenues of $21 million to $34 million.

Mason also stressed that low oil prices are not the catalyst to cut leasing. The reason being that the first barrel of oil from BOEM’s program would not be sold until 2022-2027, making today’s prices much less relevant. Instead, today’s interest rates factor more.

“With low inflation expectations, firms can still borrow cheaply to develop the new leases,” Mason said. “Moreover, today’s low rates mean that the leases are more valuable to firms now than they will be when inflation, or new market risk, rears its ugly head. Thus the federal government is better off selling leases today, rather than waiting for inflation expectations to rise, at which point the next present value lease bids will go down.”

He closed his testimony by highlighting another impact of the BOEM plan – its effect on CO2 emissions and global warming. A recent research project by Stanford University and the University of Calgary showed convincingly, Mason said, that every barrel of oil’s carbon footprint is not equal. Indeed, oil from the Gulf of Mexico has one of the lowest carbon footprints of that produced from 30 different regions worldwide. Therefore, restricting output in the Gulf would only increase output in dirtier oil fields around the globe.

About the Department of Finance
The Department of Finance is a Chartered Financial Analyst (CFA) Program Partner and a Certified Financial Planner (CFP) Board-Registered Program that offers high-quality curricula to undergraduate and graduate students interested in careers in corporate finance, asset management, real estate, insurance, banking, financial planning and business law. The department boasts internationally renowned research faculty in several areas, including derivatives, asset management, banking and spatial econometrics. The department’s Securities Markets Analysis Research & Trading Lab boasts the Bloomberg Professional service, the platform used by more than 300,000 leading business and financial professionals worldwide to make informed business decisions, and an extensive library of financial data bases including the Wharton WRDS System. Additionally, the department encourages, supports and conducts research in real estate by housing the nationally renowned Real Estate Research Institute. For more information, visit our home page or call 225-578-6291.

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Angela McBride
LSU E. J. Ourso College of Business