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

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).

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.”

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)

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;

A Quick Overview of Oyster Harvesting Activities

Louisiana Annual Oyster Production, public grounds private leases Million Lbs

Current Value of Louisiana Oyster Production,

Deflated Value of Louisiana Oyster Production, Deflated Value ($ mill) public grounds private leases

Louisiana Dockside Oyster Prices,

Acres of Leased Waterbottoms,

Oyster Production Per Acre,

Current and Deflated Value Per Acre of Leased Waterbottom

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

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)

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

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)

Total Estimated Payments From Non-seismic Activities Conservative EstimateMore 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

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%;

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

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

Relationship Between Oyster Harvesting Income and Oil-and-Gas Compensation Net income from oyster harvesting activities estimated to be $31 per acre in (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 from oil-and-gas activities equal or exceeds net income. In some years, payments likely exceed gross income;

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

I Will Let You Decide Thank You