I know it's hard for people to believe, but you can use one set of transactions as a proxy for pricing another set of transactions. Multinationals do it all the time for tax purposes. Simple common sense says the same can be done to price these sorts of leases.
Furthermore, a competitive bidding process can be used as well to obtain a market rate royalty.
Absent some mechanism like these, the only rational conclusion to draw is that Trump is simply engaging in cronyism and giving away the store.
I'm a little shocked this is such news to so many of y'all.
The only thing I am shocked at is such a nutty way to explain the way royalties work.
I have participated in many, many ventures both domestically and internationally as an economist.
One most DEFINITELY does not do in the oil industry what you cavalierly say is "the way royalties work".
The offshore arena is quite different than any other arena of the industry. Capital costs are the largest in industry, the risks are larger, being in deep water primarily and subsea and removed from infrastructure, and the chances of success are more remote for a myriad of reasons including the spacing of wells.
Suffice it to say it is very, very difficult to make money. And that is even if one makes a discovery that is commercial, which might be one exploration well out of ten or twenty.
The way the large upfront cost structure and delayed income exists, one must have the ability to generate enough profit once production commences, which is normally somewhere between 10 to 20 years after you begin spending money on lease seismic, exploratory drilling, etc.
There is absolutely zero chance anyone would do anything with any offshore tracts if there were high royalties present. It would NEVER make commercial sense.
There used to be bids on royalty amounts, but from what I understand the BLM stopped that as it knew there was no way they would get bids. It is now on bonuses and commitments.
Can you please explain your own backgrounds on this so I can compare on what experience you are coming from when you make outlandish statements? Am assuming it is just one of ignorance.
@Oceander @Suppressed