Thursday, June 26, 2008

What is the Truth about the Federal Leases and Oil Production?

Rep. Rahall is calling for “Use it or Lose it” legislation that would fine oil and gas companies for not developing the leases they hold on federal lands. Perhaps you have heard the Democrats saying the oil and gas companies have leased 68 million acres for drilling and exploration but have done neither. Here at CARE a question came in asking for the truth. Please read the response from one of our energy counsel members, Paul Driessen--a geologist well versed in petroleum exploration.

Permit or Pay
The Democrats have been alternating between claims that these federal lands leased to oil and gas companies leases are either not producing or have not been “explored,” which in their minds means drilled. From my perspective, their claims amount to either inexcusably gross ignorance and incompetence on the part of these senators and congressmen, or a complete fraud on the American people in furtherance of an anti-oil, higher energy prices agenda.

The reality is hardly as sexy as their sound bites, but boils down to sound corporate and financial management, where millions of dollars are at stake. An apt analogy might be buying a new home when you are being transferred to a new city. One doesn’t just buy a place sight unseen, or buy several and later decide which one you like best, or send a broker out with no guidelines as to price, style or neighborhood, or pay no attention to loan terms and conditions. Senators Bingaman and Schumer, Congressmen Rahall and Pelosi might do so--judging from the way they want the oil companies to proceed with leasing, exploration, drilling and production--but I wouldn’t. (And for them to be in charge of the committees and legislatures that are in charge of our energy policies is really downright scary.)

Just buying a lease these days costs huge amounts of money--and that is always somewhat akin to going for what’s behind the curtain. Based on theory of where oil might be on a particular piece of land, geologic maps, nearby exploration and production work, and other data accumulated companies bid on the lease. Then they have to do seismic work, magnetic studies, 3-D mapping and other preliminary analysis. All this costs a lot of money--but has to be done before you spend a million dollars (to 10 or 20 million offshore) to drill a well. Just renting a drilling rig these days costs a ton of money--and if your lease is offshore, especially in deep water, you’re talking many millions to rent a drill ship. If you don’t do your homework before you spend that kind of money, you’re guilty of gross mismanagement.

Of course, even if you get lucky and discover oil, you still need more (expensive) wells to determine whether there are commercial quantities--and then have to build (expensive) pipelines and other facilities to get the oil to market.

Of course, every one of these steps requires permits from the federal government--and that means longwinded permit applications and approval processes. These procedures include environmental and cultural impact studies, and environmental protests and legal actions almost every step of the way over endangered species, habitats, nesting and breeding areas, and these days global warming (as though only oil produced in the USA causes catastrophic climate change, but not imported oil to replace the oil we can’t produce here in the US, because most of our energy prospects have been locked up by congressional, executive and judicial fiat, or by endless environmental protests and legal actions).

It’s strange that the Democrats haven’t mentioned any of this in their impassioned floor speeches.

My view is that--instead of some kind of bogus “pay more every month if you’re not drilling or producing” legislation--what we really need is “permit or pay” legislation. If the bureaucrats don’t issue the necessary permits, or if courts put applications and leases in limbo, the government has to pay the companies, on an escalating scale, for the time their leases, seismic permits, drilling permits, production and pipeline permits, and money are tied up in the approval or litigation process. That would really result in rapid drilling, rapid production and lower oil and gas prices.

It would be so much nicer if we would all start pulling together on producing more energy here in America, enabling consumers to pay less, and safeguarding the energy and economic civil rights of poor and minority citizens.

For more on this topic: Sen. Bingaman out of step on energy needs

Paul Driessen is author of Eco-Imperialism: Green power ∙ Black death ( and senior policy advisor for the Congress of Racial Equality and Center for the Defense of Free Enterprise, whose new book (Freezing in the Dark) reveals how environmental pressure groups raise money and promote policies that restrict energy development and hurt poor families.

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