The Truth on Unused Oil Leases
Hat tip: American Anachronism
Former Congressman Ernest Istook took time out his busy schedule to reply to a blogger’s misgivings concerning the new Democrat mantra against “Big Oil,” in particular, their criticism that the oil companies are not exploiting the vast majority of already granted oil drilling leases. Below is Mr. Istook’s reply:
Col. Ward —
First, thank you for your service to our country. We can never express that often enough. Your general description of the oil and gas business is on-target. And the congressional comment you cite sounds to me like it came straight out of the playbook of environmentalists who want to mislead Americans. Rep. Tim Ryan (D-OH) is not alone in the claims he makes. (And here’s a weblink to his comments)
Evidently, talking points are being circulated encouraging a lot of Congressmen to make claims like this. Here’s another example from a floor speech by Rep. David Wu (D-OR): “WHY SHOULD WE OPEN LAND FOR DRILLING WHEN BIG OIL ISN’T EVEN DRILLING WHERE THEY HAVE LEASES?” (Mr. WU asked and was given permission to address the House for 1 minute and to revise and extend his remarks.) Mr. Wu goes on: “Madam Speaker, it is no wonder that the only Republican solution to our record high gas prices is more drilling. Who would expect anything less when two former oil executives occupy the White House? The problem is that this has been the Republican energy plan for the last 7 years. It was created in secret by Vice President CHENEY and oil executives. And it is responsible for the record high oil prices that we all face at the pump today. Republicans claim that we could lower the price at the pump if we would only approve more and more drilling leases. That is their rhetoric. Here are the facts. Oil companies do not need new areas to drill. They need to focus on areas that are already opened to them. Of the 42 million acres of Federal land currently leased by oil and gas companies, only about 12 million acres are actually being drilled to produce oil and natural gas. Madam Speaker, if the Republican claims about more drilling are correct, why aren’t they demanding Big Oil explore drilling on the 30 million acres of Federal land that are already open to them but that they refuse to explore?”
Believe me, with oil at $130 per barrel, they would drill on those lands if it made sense to do so! No, not all oil and gas leases are “being used”, because not all of them have production-worthy quantities of oil or gas. Lots of people have property that is not being used, but government doesn’t use it as an excuse to take it away, or to forbid the owners from buying other property.
First, a company may lease property, but never have the funds to properly explore it or drill an exploratory well. Second, after paying for further tests (such as seismic), they often decide the lease isn’t worth the high, high costs of drilling after all. Or they may hold onto the lease for years until either higher oil prices or new technology makes it feasible to drill. Third, a company may lease property but drill on another tract (which drains a “pool” that covers multiple leased tracts), so perhaps they’re counting it as “not used” if no well is sunk on that particular piece of property. Fourth, they may try to drill and be blocked by government bureaucrats, environmental lawsuits, etc.
Finally, not all acres are alike. Some have lots of oil. Others have virtually known. Saying they’re not drilling for oil everywhere is like faulting them for not digging a gold mine on every acre.
I’ll also check around to see if there’s a more specific comeback to that.
Thanks for writing. –Ernest Istook
Related:
Hat tip: Gateway Pundit
From McClatchy 6/11/08
Yet no one can prove that the Chinese are drilling anywhere off Cuba’s shoreline. The China-Cuba connection is “akin to urban legend,” said Sen. Mel Martinez, a Republican from Florida who opposes drilling off the coast of his state but who backs exploration in ANWR. China’s Sinopec oil company does have an agreement with the Cuban government, but it’s to develop onshore resources west of Havana, Pinon said. The Chinese have done some seismic testing, he said, but no drilling, and nothing offshore. Jorge Pinon, an energy fellow with the Center for Hemispheric Policy at the University of Miami and an expert in oil exploration in the Gulf of Mexico.
Comment by Lee Henry — June 18, 2008 @ 7:46 pm
So, release this information about where the leases are. We will take a look and form out own opinion. Why not be open with the information? What are the steps to acquiring a lease. Why would a company pay for the lease to begin with. Why don,t they release it if it is no good or does not contain a profitable reservoir? How much does a lease cost, anyway? These are questions that if answered could support the industries position on new leases.
Comment by Jane — July 14, 2008 @ 7:58 pm
Here is a list of the top 100 lease holders.
http://wid.ap.org/oilgas/lease_acres.html
.. and here is a nice easy to use interactive map showing leases and unused leases.
http://wid.ap.org/oilgas/oilgas.html
Mind you no one has leased land for oil drilling that they didn’t think would produce oil.. That’s absurd. I could buy into the thought that a few sites here or there but not 75% of existing leases.
Comment by wayne — July 15, 2008 @ 8:27 am
The information “Jane” mentions is already out there. The leases are auctioned- paid for in advance. The price varies, as is usual with an auction. The term of the leases is ten years, or less, and if there is no successful drilling within that period, the drilling rights revert to the government. A company would pay for the lease in the belief that somewhere in the leased properties, there would be a producing oil field. That is not certain, and the uncertainty adds to the cost of exploration, and reduces the value of the leases at auction.
Comment by George — July 16, 2008 @ 12:40 pm
I believe all mineral rights are owned by the government except grandfathering
Comment by Ralph — July 17, 2008 @ 8:17 am
This post does absolutely nothing to explain why so much land is leased for drilling rights yet goes undrilled, but opening new land to drilling rights leases would cause a reduction in retail fuel prices.
Do you even read what you are writing?:
“they may hold onto the lease for years until either higher oil prices or new technology makes it feasible to drill”
OK, so people who explore and drill for oil have enough loose capital to spend buccu bucks on pure speculation that oil prices might go higher.
Do you really believe that allowing these investors (whose stated goal is ever increasing profit and profit margin) to lock up even more public resources will actually help the wallet of the poor sap who hardly makes enough to fill his tank to get to work each week? The two desired outcomes are almost diametrically opposed. You say yorself that leaseholders have a history of “holding” leases and NOT drilling until prices go up. That begs the question: why not have a moritorium on new leases until the price of oil goes substantially higher and lease revenue can be increased? The amounts of new oil available from new US public land leases would hardly have the potential to lower retail prices even 1/4 of the past two years doubling in retail prices.
I’m really hoping for your sake that you are advocating this because you have some personal financial interest in oil exploration and production, otherwise you are just pitifully stupid.
Comment by john doe — July 24, 2008 @ 7:00 pm
John Doe:
You say you are worried about the poor sap paying high gas prices. These days that includes almost everyone who works for a living. But I can not agree with you on your comments. If land is auctioned off and the buyers bid and get the land without knowing what it will produce. It stands to reason that large portions of that land will be unusable. If a farmer were given an opportunity to bid on property that may or may not be able to be farmed, then after winning the bid found that only 2% of that land was of use, would he use the land at all considering the set up costs? Especially if the overall amount that could be produced would not compensate those costs. But, if the land lacked only some particular fertility component that he hoped would soon be available he may hold out hope to make use in the future. Keep in mind, he has bid and paid for the lease. He is stuck with that for the 10 years, he can give the land back(??) but is still out the money.
Comment by mark — July 31, 2008 @ 9:52 am
[…] the claim is in regards to pumping, not exploring. Second, there is a simple explination for why: […]
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[…] Thousands of unused oil leases exist, and aren’t being drilled for a really simple reason- it doesn’t make business sense to do so. This is true locally as well as nationally. The county of Santa Barbara is home to one of the […]
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Comment by patsy fulsom — October 20, 2008 @ 3:26 pm