Economic Analysis of Oyster Lease Dynamics in Louisiana

1. Economic Analysis of Oyster Lease Dynamics in Louisiana Walter R. Keithly, Jr. Richard F. Kazmierczak, Jr.

2. The Role of Private Leases and Public Seed Grounds • Louisiana generally leads the nation in oyster harvest: Represents a combination of production from private leases (approx. 80%) and pubic seed grounds (20%). • Public seed grounds serve other functions: primarily the transplant of “seed” oyster to private leases where it is subsequently harvested for the market. • The combination of leasing and public seed grounds has led to a stable environment for oyster harvesting activities, including encouraging industry investment (preservation, rehabilitation, and expansion of existing and potential oyster grounds).

3. Relevant Leasing Legislation • La Revised Statute La.R.S. 56:3(B) entitles the state to ownership of “…beds, bottoms of rivers, streams, bayous, lagoons, lakes, bays, sounds, and inlets bordering on or connecting with the Gulf of Mexico, within the jurisdiction of the state, including all oysters and other shellfish and parts thereof, either naturally or cultivated and all oysters in the shell after they are caught or taken.” • The statute also states that ownership “shall be under exclusive control of the Wildlife and Fisheries Commission.”

4. Relevant Leasing Legislation (continued) • Louisiana’s production is derived from a combination of production from leases and public seed grounds: • La.R.S.56:428 : Gives the lessee exclusive use of water bottoms and provides that a lease is heritable and transferable (leases are of a 15-year duration and the current leaseholder has the right of renewal when the lease expires); • The rental rate, set by legislation from the 1989 Louisiana legislative session, is set at two dollars per year (when leasing was first introduced in the early 1900’s the rental rate was set at one dollar per acre and was increased in the mid-1970s to the current two dollars per acre)

5. The Issue Conflicts between oyster leasing activities and coastal restoration activities; • Caernarvon lawsuit; • Subsequent conflicts (moratorium); • There is a belief that some leases, unproductive in nature, are being taken and held for speculative purposes;

6. A Quick Overview of Oyster Harvesting Activities

7. 16 14 12 Million Lbs 10 public grounds 8 private leases 6 4 2 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Louisiana Annual Oyster Production, 1960-2005

8. 40 35 30 Current Value ($ mill) 25 public ground s 20 private leases 15 10 5 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Current Value of Louisiana Oyster Production, 1960-2005

9. 30 25 20 Deflated Value ($ mill) 15 public grounds private leases 10 5 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Deflated Value of Louisiana Oyster Production, 1960-2005

10. 4 3.5 3 $/lb 2.5 Current Price 2 Deflated Price 1.5 1 0.5 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Louisiana Dockside Oyster Prices, 1960-2005

11. 450 400 350 300 acres (thousands) 250 200 150 100 50 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Acres of Leased Waterbottoms, 1960-2005

12. 120 100 lbs/acre 80 60 40 20 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Oyster Production Per Acre, 1960-2005

13. 120 100 $/acre 80 deflated value 60 current value 40 20 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Current and Deflated Value Per Acre of Leased Waterbottom

14. Other Income Generating Activities • Revenues from oil-and-gas related activities along the coast: • Non-seismic activities • Seismic activities

15. Methodology for Estimating Non-seismic Activity Compensation • Interview landmen throughout the region (provides information on compensation by lease number); • Pre-impact assessments (provides the population of leases that will be impacted by lease number); • Merge the two data sets; • Pre-impact assessments also contain other relevant information: • standing crop of oysters • amount of different bottom types (mud, reef, etc)

16. Estimated Damage Payments for Non-Seismic Activities 2004: Productive $3.7 million Non-productive $4.9 million TOTAL $8.6 million 2005: Productive $3.5 million Non-productive $4.6 million TOTAL $8.1 million

17. Average Estimated Payment Per Lease • Estimated payment per lease of approximately $11.8 thousand; • Little difference in payment per lease as to whether the lease was productive. • Non-productive leases equaled 56% of the total leases receiving compensation (68% from Avenal considered non-productive)

18. Total Estimated Payments From Non-seismic Activities Conservative Estimate More Likely Estimate 2004 $8.6 million $12.1 million 2005 $8.1 million $11.3 million Payment per leased acre: 2004 $22 per acre $31 per acre 2005 $21 per acre $29 per acre

19. Methodology for Estimating Seismic Activity Compensation • First, we obtained a sample of payments associated with these activities; • To estimate the number of leases that may be impacted, we obtained data from LDNR on leases that were within the boundaries of all coastal seismic activities; • Percentage of leases within boundaries that would receive compensation estimated to be between 75% and 100%;

20. Total Estimated Payments From Seismic Activities Lower estimate Upper estimate $2.04 mill. $2.73 mill. Per leased acre payments: $5.20 per acre $6.90 per acre

21. Total Estimated Payments From Seismic and Non-seismic Activities Conservative Estimate Upper-Bound Estimate 2004/05 $10.4 million $14.4 million Per leased acre compensation: 2004/05 $26 per acre $37 per acre

22. Relationship Between Oyster Harvesting Income and Oil-and-Gas Compensation • Net income from oyster harvesting activities estimated to be $31 per acre in 2004-05 (upper-bound estimate); • Estimated total payments to lease holders from oil-and-gas activities estimated to equal $26 to $37 per acre; • Hence, relatively clear that payments to leaseholders in 2004-05 from oil-and-gas activities equal or exceeds net income. In some years, payments likely exceed gross income;

23. Returning to the Main Issue (Is There Speculation?) • Are individuals rational in their behavior?

24. I Will Let You Decide Thank You