Added 8/3/08
- also read The Truth About The Oil Debate
– a primer on Oil and Renewable Energy
68 Million Acres and Oil Companies Do Not Drill
If you listen to Harry Reed, Nancy Pelosi, Barack Obama, Democratic strategists on talk shows, or read opinion pieces written in the far left newspapers, like the New York Times, you have heard/read that we do not need to open up new areas for drilling, because the oil companies are sitting on 68 million acres and they have not bothered to drill on those acres.
This is propaganda against drilling. This is a bogus argument based on talking points by the far left to prevent drilling. These people want to eliminate fossil fuels from our energy diet at all cost and they will do this without regard to who is hurt and what it does to our national security and our economy. Renewable energy is simply not ready to fully power this nation, and it will not be ready for 15 years or more. That is why Barack Obama wants to invest $150 Billion in renewable research over the next ten years.
The following is information from the American Petroleum Institute that refutes the Democratic talking points that the oil companies have 68 million leased acres to drill on and that they should drill on these leases first. Update July 31, 2008: 400 companies and not only big oil hold and pay for these leases on shore and 121 companies hold and pay for the leases off shore and again it is not only big oil. Most of these companies are only in the business of exploration, discovery, drilling, and pumping. Their only business is to drill, thus to be accused of intentionally NOT drilling is ludicrous.
Here are questions and answers to why drilling takes place or not on the 68 million acres. The API makes a lot more sense then these reckless individuals who will spout just about anything to prevent drilling.
The facts about non-producing federal leases:
CLAIM: Oil and natural gas companies are given leases by the government and purposely don’t produce from them to increase prices.
FACT: Companies pay billions of dollars for the right to explore on federal lands. If the company does not produce within the lease term, it must give the lease back to the government, and the company does not recover the billions of dollars it may have invested.
CLAIM: Companies let many of their leases sit idle and don’t produce them
FACT: Companies actively develop their leases – but not every lease contains oil or natural gas in commercial quantities. In many cases, the so-called “idle leases” are not idle at all; they are under geologic evaluation or in development and could be an important source of domestic supply. However, this does not mean all leases have the potential to produce. Companies can evaluate leases for several years only to determine that they do not contain oil or natural gas in commercial quantities. The road to bring the oil and natural gas to market — obtaining the lease, evaluation, exploration and production — is a long and complicated one.
CLAIM: If the lease doesn’t contain oil or natural gas, then the company shouldn’t have bought it.
FACT: There are tremendous risks and challenges involved in finding and producing oil and natural gas. There is no guarantee that a lease will even contain hydrocarbons. It is not unusual for a company to spend in excess of $100 million only to drill a dry hole. A company usually has only has limited knowledge of resource potential when it buys a lease. Only after the lease is acquired, will the company be in the position to evaluate it, usually with a very costly seismic survey followed by an exploration well.
CLAIM: There’s absolutely no reason for a company not to produce if it finds oil or gas on the lease.
FACT: If the company finds resources in commercial quantities, it will produce the lease. But there can sometimes be delays – often as long as seven to 10 years – for environmental and engineering studies, to acquire permits, install production facilities (or platforms for offshore leases) and build the necessary infrastructure to bring the resources to market. Litigation, landowner disputes and regulatory hurdles can also delay the process.
CLAIM: The vast majority of federal and gas resources are already available for development.
FACT: In the Lower 48 states, about 85 percent of the Outer Continental Shelf and 67 percent of onshore federal lands are off-limits or facing significant restrictions to development. There is no way, at this stage, to determine exactly the extent of the resources off-limits because many of these areas have not been subject to inventory studies in decades.
CLAIM: Non-producing leases could provide a major source of new supplies.
FACT: Many of these leases will provide a major source of new domestic supply once they are developed. Companies are actively developing the leases, and in addition to paying for the lease, they must also pay rent to the government while they conduct development and exploration efforts. But this process takes time. Reducing the time companies have to develop a lease or increasing the costs imposed by government will not increase supply for American consumers. Nor will denying access to areas of oil and natural gas potential like the Atlantic and Pacific OCS.
CLAIM: Increased domestic drilling activity has not led to lower gasoline prices, and more leases and drilling won’t help either.
FACT: Our nation needs more supplies of all forms of energy, including domestic oil and natural gas, to meet its growing energy demand. Increased drilling has helped the United States offset the natural declines in domestic oil and natural gas production from older fields. Greater drilling activity tends to produce more supply. Fundamental economics suggest that additional supplies put downward pressure on prices.
CLAIM: Companies should be penalized for not producing from their leases.
FACT: Oil and gas companies take all the risk with federal leases. Not only do they pay billions to obtain leases, they pay to hold them while they are spending even more capital to determine if these leases contain resources. Penalties on leaseholders on top of those fees would only discourage U.S. exploration and production, at a time when the United States needs all the energy it can get.
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A commenter pointed out a relevant Business Week article, I suggest it for additional reading. Keep in mind that the article does not address the Return on Investment and the Profit Margins of the Exxon in any depth. Those commenting to that article add some important information. Business Week Article
1) Should be stats on the amount of time that has been taken on the leases. Let’s see how much time is ‘needed’ versus taken.
2) Oil execs maintain that supply is not the problem. This makes one wonder just how hurried the oil companies are to drill.
3) Would like to see supporting documentation on the ‘billions’ spent on the leases.
You might like to know the API expressly forbids copy/pasting their data directly without explicit authorization. Anyway, on to the points (which are not ZomgBashDemocrats, they are simply bullet points)
1) Companies pay billions of dollars for the right to explore on federal lands.
Response: So you think they should be able to sit on these lands indefinitely? The rule here is actually not to support environmental causes of any type, this is being taken HUGELY out of context. It’s to protect other OIL INVESTORS from land horders who buy up anything even remotely possibly holding oil and then reselling at extrodinary profits.
2) Companies actively develop their leases – but not every lease contains oil or natural gas in commercial quantities.
Response: This connects with the previous one. Companies have TWENTY YEARS to find out if there’s oil on the property. During this ENTIRE TIME they can get all their money back. Commonly they release the lease and re-up it. I fail to see how 20 years in this day and age is not enough time to fulfill a lease contract and that 20 years is basically free land holding if it contains nothing, a fact the previous statement fails to mention.
3) There are tremendous risks and challenges involved in finding and producing oil and natural gas.
Response: A $100 million is a drop in the bucket for them, I doubt anyone is seriously worried about test well costs.
4) “There is no way, at this stage, to determine exactly the extent of the resources off-limits because many of these areas have not been subject to inventory studies in decades.”
Response: This is EXTREMELY wrong. We have a VERY good idea of how much oil lies in our offshore reserves and ANWR. The technology is readily available and easily detectable these days. We are much less sure about other countries in OPEC producing nations because, well, they just aren’t that trustworthy. We’ve known for the past few years almost to a barrel how much is in the coast.
5) Many of these leases will provide a major source of new domestic supply once they are developed.
Response: Once again, they’ve had more than 20 years in most cases. I fail to see what the holdup is. This is more than enough time to get around all the bells and whistles demanded of them.
6) Companies should be penalized for not producing from their leases.
Response: That is just plain stupid. Penalized for not making money? :p (yes I realize this is a claim and not your side). We agree here.
If I didn’t respond, I didn’t have anything to say or it was an opinion post. Overall, this was a lot of poor talking points with a lot of misdirection painting the oil companies as poor victims. I’m all for them being able to make a profit, that’s what companies DO. That’s their job. And it’s their job to convince you that what they want is in your best interest. And that is OK!
The downside, is that they are trying to paint themselves as destitute victims being held hostage by the shackles of government red tape and chains. The truth is, they aren’t. What they are currently doing, is trying to access recently found easier to access oil for cheaper prices. If possible, they have no intention of keeping their current rigs, because running them costs more than drilling cheap oil. The spots they have open now not being developed are also somewhat costly. It’s not that they won’t make money off these mind you, they just won’t make AS MUCH money.
Don’t be fooled by simple talking bullets like this and take anything you get from API with a massive grain of salt for obvious reasons :p
OrganicCat – can you site any sources or is this just your opinion? Let me see – Oil at $130 per barrel and they have oil under foot to drill and pump to sell, but instead they choose not to explore and drill and buy it from other producers – either these folks failed business school, or they have lost their heads.
By the way, I have API’s authorization. I received it when I went to them as part of my research.
How do the oil companies know that the 85 million acres now leased have no oil?
How do they know that other spots, eg ANWAR and other off shore spots have easy to find oil?
Choyes, good question. The oil companies, not necessarily big oil, and there are 400 small to large companies and partnerships looking for oil on land leases along with 201 of the same type companies looking for oil off shore in the 68 million acres. geological studies lead to exploratory wells. If oil is not found in commercially reasonable amounts, they move on and continue to pay the government for the lease. Remember, the lease is to explore then drill if oil is found, not to drill only.
[...] how it is a government/Oil Co. link and therefore we should ignore it Here is more on the subject: http://brokengovernment.wordpress.co…-do-not-drill/ __________________ Charles_Main "Whenever a man has cast a longing eye on offices, a [...]
OrganicCat sounds like he’s a first class Pelosi/Reid Lemming…
He’s so worried about all that money the oil company makes, yet he ignores all the money his / our government makes off of BIG OIL to help all the so called little people…
The truth is you will never have a dumb-o-crat ever acknowledge why it’s alright to fund fannie may and freddie mack CEO’s with their 10 million dollars salaries — but ohhh no isn’t it terrible that someone in oil can make good money. He also ignore’s the fact that margin is calculated based upon many factors for the oil companies. The margin that oil companies earn is actually only about 8.5% which is about average margin levels for a company if and when it’s making money. He want’s to only look at the amount of dollars they earn, not their margins… And, yes the dollars oil companies earn is huge based on the massive volumes of their products being in demand by the world public.
OrganicCat ignore’s the fact that the US GOVERNMENT TAKES FAR MORE MONEY FROM THE OIL COMPANIES in TAXES, and outright regulations that allow them to TAX them further by offering our lands (yes the peoples lands) on leases to explore for energy that the environmentalist , activist, and yes — mostly Dumb-O-Crats will fight even if gas raises to $20.00 per gallon.
I read in an article somewhere that the US oil companies earned about 680 billion dollars in revenues, and that the government took nearly 510 billion of their money in taxes… Then they tax the finished goods, then they tax the consumers in the stores, etc… It’s my understanding our government is raping the public at a rate exceeding nearly 3 times the earning of the oil companies…
If that’s all true, will someone tell me who the evil ones are here… I seem to think it’s our very own government. They seem to have the best shell and nut scam going on… Heck they are worse the mobsters it would seem to me.
Oh, almost forgot, one more fact.
An oil company in our Gulf, discovered a vast amount of oil in a leased area by our government. Now they are tied up in legal garbage that is preventing them from drilling their rightfully explored and leased turf…. And guess what? Those Dumb-O-Crats are doing everything they can think of to delay their ability to drill… Most likely they are waiting to keep this tied up in court until the oil companies lease expires…
Michael,
ZOMG, it MUST be a fact if you say so. With cute little flourishes like “Dumb-O-Crats,” you sound like quite the credible source.
Fact: Big Oil pays fewer taxes in the U.S. than other countries. The U.S. government is a lot nicer than other countries when it comes to extracting its natural assets.
Fact: U.S. taxpayers take it in the wallets when oil comes from federal land “That $17 billion is made up mainly of tax breaks newly offered or extended in the Energy Policy Act of 2005, including a “percentage depletion allowance” that allows oil companies to deduct 15% of their sales revenue, to reflect the declining value of their investment, and 70% of their drilling costs.
Additionally, oil and gas companies pay reduced royalty fees on products they recover from federally owned waters, which Pica says could cost taxpayers $65 billion over five years. ”
http://www.businessweek.com/bwdaily/dnflash/content/may2008/db2008051_596535.htm?chan=rss_topEmailedStories_ssi_5”
Micheal, your numbers are wrong. Big Oil making the biggest profits ever. Much of that tax revenue is going to countries like Libya and Russia, where they can get up to 90% of the profit. Still, Big Oil chooses to drill in those places. I guess 10% doesn’t look so bad to them.
OrganicCat, you make some good points but your #4 is just dead, even though you say the contrary is “EXTREMELY wrong”
I just recently saw on C-SPAN a presentation by a DEMOCRATIC representative that supports drilling on the OCS. She said that no one knows the extent of the oil that can be RECOVERED from a certain area. We can only make guesses and bad ones at that. And the guesses we make are about the amount, not the RECVOERABLE amount, which apparently makes a huge difference.
I am an Independent and I can’t stand the political rhetoric back and forth between Dems and Repubs. Doesn’t anyone care about TRUTH anymore? Maybe its just the Mason in me.
Its just this simple: Allow the exploration of ALL the possible areas. This includes the 68 million acreas already leased, ANWR, and the OCS. Lets figure out what the hell is there in a competent, environmentally free way, and then lets make a logical rational decision on it. Whatever happened to “lets do both”. Get us more oil so we don’t have to buy it from foreigners AND spend a huge amount of money/energy on alternatives technology. Why can’t we just agree on that?????
The 68million acres is part of the fraud that oil production can be increased by 4.8 million barrels a day.
The 4.8 million is bogus because the method is bogus. The number was no derived by an energy expert but by a staffer named Steve on the House Committee on Natural Resources.
Steve came up with the number by
- creating a percentage of the difference between producing and non-producing acreage for the two types of leases, onshore and offshore
- Multiply each percentage by the present production from the applicable lease type (onshore or offshore) to come up with estimated production for each nonproducing lease type
- added the two estimated nonproducing lease types to come up with 4.8 million barrels of oil from nonproducing leases
I was able to derive the above method used by Steve, which was confirmed by Kathriene Romans, Research Assistant, in an email to me on 26 September 2008. I had been trying for over two months to obtain the method but CNR would not even reply (I was always passed over to voice mail). In June 2008, Chairman Rahall refused to release the method when asked for the method in a letter by Congressman Young, the Republican leader on CNR.
The method is bogus for no one in the oil and gas industry would ever use such a method and neither would the government agencies that provide such estimates to Congress (US Geological Survey, Energy Information Agency, Minerals Management Service). When oil and gas industry or government agencies make production estimations, it is based on reservoir estimations which was not done by Steve. Experts also give the estimates over a range of low, mean and high which reflects uncertainty for reservoir estimates are uncertain which are also made with a low, mean and high estimate,. Yet Steve gives a single number, which denotes certainty.