‘Oyster Leases’ Just a Shell Game?
Q: When is an oyster lease not an oyster lease?
A: When the oyster lease is taken with no intent to harvest oysters.
In other words, it’s a speculative lease acquired to generate income from another source: oil and gas companies.
It’s a practice that has become relatively common in coastal Louisiana, which harbors some of the most productive oyster grounds in the United States.
Oyster leasing in the Bayou State is a revered, near-sacred institution that dates back to the late 1800s. The leases are both heritable and transferable and often are passed from one generation to the next.
The lessee has exclusive use of the water bottoms for oyster cultivation.
The leases have long co-existed with the region’s prolific oil and gas activity, which has the potential to inflict damage to these bottomlands. As a result, compensation for actual -- or fabricated -- damage is a routine practice for the oil industry.
Some oystermen reportedly claim damage even if a company merely lays out plans to lay pipe or move a rig onto the lease area.
There’s major money involved.
In fact, the oil companies have shelled out millions of dollars to oyster lease holders for passage over leases where there has never been – and never will be – an oyster harvested, according to Don Briggs, president of the Louisiana Oil and Gas Association.
But time is money, and the companies opt to write a check rather than litigate, Briggs noted, while emphasizing that the rogue speculators do not represent the majority of the oyster industry participants.
Given the situation, the Louisiana Department of Natural Resources (DNR) commissioned LSU natural resource economists Walter Keithly and Richard F. Kazmierczak to conduct a study of speculative oyster leasing.
The DNR recently released the effort’s final report: “Economic Analysis of Oyster Lease Dynamics in Louisiana.”
The report noted that the renting of oyster leases for speculative purposes is legal, but the thinking is that levels of leased acreage would be lower without the juxtaposition of oyster leasing and oil and gas activity. Oyster lease acreage totaled 400,000 acres in 2004.
“The amount of acreage has increased significantly since the 1960s with no increase in oyster production off the leases,” Keithly said. “This leads one to surmise a certain amount of that lease activity is a result of speculation.
“In the oyster industry’s defense, we did note they have had to lease increased acreage to protect themselves to some extent from things like increased salinity and so forth,” Keithly added. “Still, one can draw the conclusion that at least some of that acreage was leased for speculative purposes.”
It’s unlikely that newcomers will get in on the game of reaping rewards for doing nothing -- at least not any time soon -- as Louisiana reportedly has a current moratorium on the issuance of oyster leases on water bottoms not presently under lease.
In recent years the income derived from payments associated with oil and gas activity is estimated to equal or exceed the net income derived from actual oyster harvesting activities, according to Keithly.
“The total annual value of the state’s oyster production is about $12 million,” he said. “But the oystermen gross $10.1 million to $14.79 million from oil and gas activity (so-called).”
The income available to oyster leaseholders is derived from two major oil and gas industry sources:
- Non-seismic, which includes production-related activity, such as pipelines, rigs and equipment maintenance.
- Seismic activity, which includes program surveys and equipment deployment for the actual data acquisition.
Keithly noted the calculated lower-bound estimate of annual compensation received by leaseholders for seismic activities for the 2002-05 time period was $2.04 million, with a corresponding upper-bound estimate of $2.73 million.