– 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.
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
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