More than half of the leases to drill for oil and gas on public lands and waters are not actively being tapped for energy, according to a new report by the Interior Department.
The study, ordered by President Barack Obama on March 11, could give the administration a political buffer against charges that it is not doing enough to promote domestic energy development amid an oil price spike stoked by unrest in the Middle East.
“We continue to support safe and responsible domestic energy production, and as this report shows millions of acres that have already been leased to industry for oil and gas productions sit idle,” said Interior Secretary Ken Salazar in a statement. “These are resources that belong to the American people, and they expect those supplies to be developed in a timely and responsible manner and with a fair return to taxpayers.”
Democrats seized on the report as evidence that it is the oil and gas industry — not the government — that is keeping precious U.S. energy reserves under lock and key.
Rep. Ed Markey, D-Mass., accused “multi-billion dollar corporations (of) warehousing millions of acres of public lands, waiting for the price of oil to skyrocket.”
Sen. Robert Menendez, D-N.J., said that before opening new areas to drilling, Congress should do more to force companies to develop the leases they already have. He has accused oil companies of camping out on leases to pad their portfolios.
“It’s simply wrong for oil companies to be sitting on federal leases to boost their stock prices while American families feel the pain at the pump,” Menendez said.
But the oil industry is fighting allegations they are sitting idle on drilling leases while the cost of crude climbs.
Jack Gerard, president of the American Petroleum Institute, cast the new report as a political stunt.
“This is clearly an effort to divert the attention of the American people away from the fact that the administration at every turn has delayed or deferred or restricted our own access here at home,” Gerard said in an interview. “It is a way to divert the public’s attention from their outright inaction.”
After all, industry representatives say, not every lease is home to valuable oil and gas — and it can take years to find out. In the meantime, lease-holding companies pay the federal government annual rental fees, on top of the money they already spent bidding on the drilling rights.
A long path of geological surveying, exploratory drilling, construction and permitting separates the initial lease sales from energy production, if oil and gas is even located on the site.
Randall Luthi, head of the National Ocean Industries Association, said it was misleading for the Interior Department to label some leases as idle even though seismic activity and other geological surveying is under way at the sites.
“These are necessary precursors to drilling and production and will also improve the success rate of exploratory wells,” Luthi said in a statement. “Their conduct cannot be considered ‘inactivity’ by any measure.”
Industry representatives stressed that regulatory delays are partly to blame for inactive leases. API’s Gerard pointed to Shell’s proposed drilling in the Arctic waters near Alaska that has been delayed for years, most recently by a federal environmental appeals board’s ruling on essential air permits for the project.
Shell paid the government more than $2 billion for the right to drill in the Beaufort and Chukchi seas and has spent roughly $1.5 billion more preparing for the work, which is now on hold until 2012 at the earliest.
Gerard said it was preposterous to suggest that an industry that has spent billions and billions of dollars on leases that ultimately may not contain oil and gas would sit idle on them.
“There is a number of variables to this. It is not as simple as the administration is trying to make it seem,” Gerard said. “We are risking our capital, giving it to the government, and we pay an annual rental fee just for the right to hold it and look.”
Jim Adams, president of the Offshore Marine Service Association, said it was hypocritical for the Obama administration to try to “shift blame” for rising gas prices and said a major problem was the flow of essential drilling permits to energy companies.
“America needs new permits from the Obama administration, not new excuses,” Adams said in a statement. “Companies aren’t exploring for oil because the White House won’t let them.”
According to the Interior Department report, inactive leases in the Gulf of Mexico harbor an estimated 11.6 billion barrels of oil and 59.2 trillion cubic feet of natural gas. Those offshore oil and gas leases currently are not producing energy or are not covered by exploration or development plans filed with the government.
The administration has proposed a $4-per-acre “use it or lose it” fee on non-producing leases. Markey and other lawmakers are advancing a similar escalating fee proposal in Congress.
Administration officials have floated other ideas for speeding up production on federal leases, including shortening the time of those contracts and charging a lower royalty rate for oil and gas that it is produced swiftly.
In issuing the report today, Salazar stressed that the government is “exploring ways to provide incentives to companies to bring production online quickly and safely.”