Obama administration flags idle oil and gas leases *updated*

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.”

34 Comments

  1. OilMan

    Ok just because 1 block (lease) in the GoM is 5,000 acres in size does not mean oil/gas is located across the entire block. Looking over the report, that is exactly what the federal government is claiming on these ‘idle’ leases. Another point is over 4,000 of those leases do not have GOVERNMENT APPROVED plans….

    #1
  2. meetwoodflac

    Leave it to Pharaoh and his buddies to seek out the deep pockets for an extortion scam. The right to defer drilling (while you are evaluating the area) is provided in the lease contract already. It is the rental, paid annually. Of course this path of prudence is probably quite a foreign concept to the community organizers in the bunch. The oil companies are spending their own money, not that of others, so a little caution is needed, an idea not readily embraced by those who think that money springs from the Treasury at their whims.

    #2
  3. jukester

    Wow, this story encapsulates in one simple picture, the lack of leadership, technical knowledge, outright manipulative behavior and falsehoods from the US GOVERNMENT and MR OBAMA and his henchmen. Either they are truly the most stupid people walking on this planet (unlikely), or they choose to lie and misrepresent the facts to a gullible public and media. Desperate acts, by individuals who know they have their jobs for only 2 more years (or less)……

    #3
  4. Zilch

    They are waiting for him to get out of office.

    #4
  5. richard

    No, you don’t hold it to look at it. You hold it so it can be listed in your securities filings as assets and increase the paper value of the company.

    #5
  6. richard

    “The oil companies are spending their own money”… that’s a good one. They get tax subsidies for every seismic they run, pipe they lay, rig they drill. About $4 billion per year.

    #6
  7. Jackalope

    This administration is obviously clueless to how the lease process works. The government doesn’t know if there is oil or gas in a lease, and neither do the producers. They buy a lease hoping it contains oil and/or gas. If the lease doesn’t, then the producers move on. Obama has bound the O&G industry then claims it’s their fault for not drilling just as he sold guns to the Mexican drug cartels and blamed gunshop owners (many of whom questioned the approvals).

    #7
  8. louis

    DRILL HERE, DRILL NOW !

    #8
  9. VelvetRob

    Let’s not forget that big oil gets 53 billion in federal subsidies.

    #9
  10. Rob

    So when will the Government halt the process of bundling multiple tracts or sections of land into one lease contract where you have to take it all as opposed to the area of interest? This forces the oil & gas companies to lease large areas of land, in which they probably have no interest in developing, just to have an opportunity at a small area of interest that may or may not be productive. The politicians should consult the Interior Department about this so that they fully understand the process in place before casting the oil and gas companies as obstructive to energy development.

    #10
  11. Energy Moron

    Umm…

    Our picture of what is under the mud in the ocean is pretty limited.

    For better or for worse companies pick up acreage where they don’t think any oil or gas will be but are next to what are called “prospects” just in case they are wrong about the prospect.

    After more drilling they have a better idea of what is going on.

    So, is the government going to force oil companies to drill leases that were picked up just in case they were wrong and later proven by drilling to contain no oil?

    Should companies be forced by the government to drill dry holes?

    #11
  12. johhnyrivers

    >>After all, industry representatives say, not every lease is home to valuable oil and gas — and it can take years to find out.<<<

    Well you can't have it both ways. The drill baby drill crowd beats up the administration and acts like if they drill today the oil will come up tomorrow.

    And if it really is a free market – Nobody twisted the arms of these multi-national oil conglomerates to bid on these parcels.

    #12
  13. Gabacho

    This dictator must be impeached, in order for things to turn around !

    He needs the check book taken away! He just gave Brazil $2BIL, while he has the USA oil producers shut down.

    He is doing what the “conservative whack jobs” warned us about !

    Obama wants AM radio and the internet shut down, because those are the only two oputlets that he does not control !

    FEMA Camps are not for “natural disasters”

    #13
  14. denmond

    @richard: Uhh.. it’s a lease. Leases aren’t reflected as assets and don’t affect a company’s balance sheet.

    #14
  15. Dee

    Wow, just some blame coming from both sides. Why are we suprised? If they spent the time really trying to do something instead of defending their inability, something might be accomplished. Blame matters not if all you do is battle each other, Blame is not a valid excuse.

    #15
  16. Trail Trash

    There is a term in the oil industry called “goat pasture”. Sometimes to get ahead in a play area, a company will lease up a bunch of acreage on the speculation that it might be productive. Later it turns out to be nothing but “goat pasture”.

    #16
  17. richard

    Every single article about drilling should mention 2 facts, 3/25/2011 Baker Hughes reported that there are now 851 oil rigs drilling in the US. That is the highest level since Baker Hughes started counting 24 years ago. In February API reported that US crude oil production is at a historically high level of 5.428 m/b/d.

    #17
  18. 45caliber

    I will admit that the oil companies are right in saying that the government is limiting what they can do. However I will also admit that the oil companies are holding back. I know of several wells in the area here and in Arkansas that were drilled and then capped – not because they didn’t find oil and gas but because they don’t want to use it yet.

    #18
  19. richard
    #19
  20. Trail Trash

    45caliber, are you sure they are not gas wells waiting for a pipeline?

    #20
  21. Oil Patch 41

    Another example of a half a$$ report. Sure there are leases that are not being actively drilled on. Many reasons for that, inculding the testing required to determine if there is any recoverable oil or natural gas, availability of rigs to drill, annual budget for exploration for the company that holds the lease, etc. Many leases are just a hedge that an existing prospect may be larger than anticipated so they lock up additional land. If the government had any smarts, they would just keep quiet and let business develop what is profitable.

    #21
  22. richard

    45caliber, if the government is limiting what they can do, how is it that there are record numbers of rigs and record production levels? Or do you not trust API and Baker Hughes?

    #22
  23. DucMan

    45caliber – not knowing the facts, I can only suppose that the well is not commercially productive, and that they are waiting for the price to rise before they run a pipeline to the well.

    Just guessing

    #23
  24. YellowRose

    What business, or even individual, is going to go around digging without regard for profit margin? Unless these lands have proven that there is a huge amount of oil, there is no reason to drill yet!

    Also, the oil company has to take into consideration the soil surrounding the pockets. That plays a huge part in extracting the oil. There are various methods to extract the oil, but waiting to determine the best method that would also harvest the most oil is only the most logical and practical thing to do.

    Constant research and developments are in progress worldwide for various extraction methods. It has only been about 10 years since they developed extraction through blowing air done the well, but it only works in rock.

    People who don’t have a clue think that ALL oil wells will flow due to pressure alone, but the experts know differently. Some soils will collapse a well once the oil starts pumping, while others will barely ooze out.

    There are too many variables to consider before the drilling of an oil well even begins, and then there are also many variables when it comes to producing the well. If a well is drilled, and then capped, its probably due to trying to find the best extraction method. Why leave half of the oil in the ground because the pockets collapse when you can possibly use another method that will get 80-90% of the oil?

    #24
  25. Trail Trash

    Duh richard, PUD stands for PROVEN Undeveloped. A small percentage of leases acquired ever get booked as reserves.

    #25
  26. YellowRose

    Also, an oil company MUST get the lease prior to surveying and exploration. Currently, our government will NOT allow for surveying and exploration. So this is just another liberal attack blaming the oil companies when the oil companies are still waiting on permission to explore or survey from our fine government!

    #26
  27. goldenangel

    Apparently the Dumbocrats have a large enough salary which they collect from us tax payers to pay the price of gas and oil no matter what it is. How long are we going to sit by and allow the government to stop oil and gas production in our country and offshore? We have enough oil and gas in our county to sell it to others and make money to pay off our national debt.

    #27
  28. Perhaps it is like this: Oil companies have to get a lease before they can do any surveying or exploration. Then they do the surveying and exploration if the government will let them, which it won’t right now. Then they drill if they think there is likely to be oil if the government will let them, which it won’t right now.

    #28
  29. Dollar

    45caliber, have you seen the price of nat gas ? I would imagine those are nat gas wells are shut-in till the market improves.

    richard, there is neither a record number of rigs nor record production………….. hahahahaha

    You funny.

    In 1981, there were 900 rigs working in Oklahoma alone.

    You better go check your stats again.

    And US domestic oil production peaked in 1970 at about 10 million bpd, if I recall correctly.

    People will throw anything in a message forum. What a waste of time.

    #29
  30. Dollar

    And there’s been a Hughes rig count for far longer than 24 years.

    I don’t know where you get this 24 year period, but the mid 80′s were about as depressed a time in the US oil industry as has existed, except for the 1990′s , which were even worse.

    #30
  31. denmond

    @richard: The mere holding of a lease does not equate to a Proved reserve (undeveloped or otherwise). The lease itself isn’t an asset.

    Oil companies already A) paid a price to acquire the lease and B) continue to pay to HOLD that lease.

    That lease WILL expire after it’s designated 10 year term. What value does an oil company have in paying to HOLD a lease but then never drilling on it?

    #31
  32. Observer

    The Obama administration will do whatever it can to attack the hydrocarbon industries in the United States and praise alternative energy sources but more immediately to deflect blame for the unemployment and harm he has done to Gulf coast economies.

    In other words to confuse onshore and offshore energy exploration is to deliberately confuse the public.

    But with only twenty months until the next General Election, Obama is in full campaign mode. He is a cynical, calculating, and self-aggrandizing politician who will adopt any means and strategy he thinks will add more votes than it subtracts.

    Imagine, Obama is now focusing big time on his promise of reforming the U.S. Tax Code and whom does he appoint as his main man for this job? Why none other than the head of GE which is the same company that is famous for its tax avoidance division that is so adept at its work that GE paid zero percent on its income in its latest tax year. Compare this with a reported payment in taxes by EXXON and Conoco Phillips of 44 percent!

    Donald Trump a putative presidential candidate now displays his birth certificate and continues to ask Obama do the same.

    Obama declares that Quadafi lacks the legal standing to continue as leader of Libya; the American people along with Mr. Trump now have grave doubts as to whether Mr. Obama ever had such standing since he refuses to also allow the American public to view his birth certificate legally certified.

    #32
  33. mark

    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.
    ===============================

    That’s the real deal here. The government just wants to raise the cost of the existing leases by $4 an acre, weather there is any oil there or not.

    #33
  34. denmond

    @richard. I don’t know where you get your data: The actual weekly rig count is 1758.

    But as for your assertion about it being the highest rig count in history: This is directly from Baker Hughes FAQ on their website:

    “Since 1940 the highest weekly US rig count was 4,530 recorded on December 28, 1981. The lowest rig count of 488 was recorded on April 23, 1999. In Canada the highest weekly rig count of 718 was recorded on February 17,2006. The lowest weekly rotary rig count of 29 was recorded on April 24,1992. “

    #34