Is oil extraction actually worth the cost of the beach-front property in SoCal it often occupies, or was the property just bought during historical periods with much lower land prices?



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    Your question assumes that most oil drilling is done on lands owned by oil companies, which is generally not the case. Oil companies are rarely in the real estate business. If a company believes there might be extractable oil from a particular piece of property, it will go to the owner of that property and negotiate what’s called an “oil and gas lease,” which is essentially an option. Should, in the future, the company decide to drill there, they have the right to do so and to build whatever infrastructure they need such as pipelines and oil platforms to take the oil out of the ground, and then they’ll pay the landowner a cut, or royalty (typically 1/8) of the value of oil or gas sold. Many of these leases, especially in rural areas, never get used. The oil company pays nothing until and unless it actually starts operations. If there is oil on a piece of property that’s worth going after, the landowner will typically be in favor of exploiting it, because he or she now stands to gain a cut from the proceeds. This is true whether it’s beachfront property or any other type. What the oil company will pay for the use of the land varies depending on the market, and in a beachfront environment obviously it will pay more than the royalty or fees would be from other types of land. Also keep in mind that beachfront properties are usually heavily regulated by local authorities and these regulations may limit or prohibit any development, which means the landowner gets no beneficial use of the land except (perhaps) oil and gas drilling.

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