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2016 Financial Report of the United States Government

United States Government Required Supplementary Information (Unaudited) For the Years Ended September 30, 2016, and 2015

Federal Natural Resources Other than Oil and Gas

Federal Natural Resources Other than Oil and Gas as of September 30, 2016 and 2015
(In billions of dollars)
Natural Resource Category 2016 2015
Coal royalties 8.8 10.5
  Total 8.8 10.5

DOI plays an integral part in the implementation of the President’s Blueprint for a Clean and Secure Energy Future which is designed to build a safe, secure energy future by using cleaner, alternative fuels to power our homes and economy, producing more oil and gas domestically and improving energy efficiency. DOI is responsible for managing the Nation’s coal resources and revenues on federal lands.

The Office of Natural Resources Revenue (ONRR) within DOI is responsible for the management and collection of revenues associated with federal coal leases which are managed by the Bureau of Land Management (BLM) within DOI. The ONRR achieves optimal value by ensuring that all natural resource revenues are efficiently and accurately collected as well as disbursed to recipients in a timely manner by performing audit and revenue compliance activities.

The Mineral Leasing Act of 1920, as amended, and the Mineral Leasing Act for Acquired Lands of 1947, as amended, gives DOI the responsibility for coal leasing on approximately 700 million acres of federal mineral estate which includes 570 million of acres where coal development is allowed.  The surface estate of these lands may be under the control of BLM, the U.S. Forest Service (within USDA), private or state land owners, or other federal agencies.

Public lands are available for coal leasing after the lands have been evaluated through a multiple-use planning process. The Mineral Leasing Act, as amended by the Federal Coal Leasing Amendments Act of 1976, generally requires that coal be leased competitively and that the federal government must receive a fair market value for land leased for coal development. Once a lease is issued, federal coal leasing laws and lease terms determine the federal government’s share of production from coal leasing operations.

DOI receives coal leasing revenues from a bonus paid at the time of the lease, an annual rent payment of $3.00 per acre, and royalties paid on the value of the coal after it has been mined.  A portion of the total federal coal royalties will be distributed to other non-federal entities. The royalty rate for surface-mining methods is 12.5 percent and is 8 percent for underground mining, and the BLM can approve reduced royalty rates based on maximum economic recovery. Regulations that govern BLM’s coal leasing program are contained in Title 43, Groups 3000 and 3400 of the Code of Federal Regulations.

The above table presents the estimated present value of federal coal royalties under lease contract or other long-term arrangements as of September 30, 2016 and 2015.  The federal government’s estimated coal royalties have as their basis the DOI’s BLM estimates of recoverable reserves.  The federal recoverable reserves are then further adjusted to correspond with the effective date of the analysis and then are projected over time to simulate a schedule of when the reserves would be produced.  Futures royalties are then calculated by applying future price estimates and effective royalty rates, adjusted for transportation allowances and other allowable deductions.  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 recoverable reserves estimates.

In addition to the coal resources discussed above, the federal government has other natural resources under lease contract whereby the lessee is required to pay royalties on the sale of the natural resource. These natural resources include soda ash, potash muriates of potash and langbeinite phosphate, lead concentrate, copper concentrate, and zinc concentrate. Soda ash and potash have the largest estimated present value of future royalties. The federal government also owns coal resources and certain other natural resources that are not currently under lease. For further details on federal natural resources-other than oil and gas, refer to the financial statements of DOI.

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