Oil companies would be hit with new fees for idle, non-productive drilling leases, under a proposal advanced by Senate Democrats today.
The measure, advanced by Sens. Robert Menendez of New Jersey, Charles Schumer of New York and Bill Nelson of Florida, would impose the new $4-per-acre “use it or lose it” fee on leases that are not being developed.
President Barack Obama asked Congress to establish a fee as part of his budget plan for the federal government. Rep. Ed Markey, D-Mass., has advanced a similar proposal in the House of Representatives. The measures aim to encourage oil companies to diligently develop the federal lands and waters they have leased.
Although similar proposals have been floated on Capitol Hill for years, they have taken on new urgency amid rising oil prices stoked by Middle East unrest, and as both parties try to avoid the political fallout from spikes in the cost of gasoline.
Republicans have seized on the rising crude prices as evidence that the Obama administration urgently needs to open up more areas for oil and gas development. Some Democrats, meanwhile, have been eager to show what they are doing to boost domestic energy production — and the diligent development proposal would fit into that.
Menendez cast the rising oil prices as an industry problem.
“New Jersey families and businesses are getting slammed by gas prices while oil companies twiddle their thumbs,” he said. “We’re going to get answers for why oil companies are not investing in new production.”
Menendez said that under his bill, “the government will begin holding oil companies accountable — not holding their hands.”
The legislation would apply the new $4-per-acre annual fee to new leases — raising an estimated $874 million over the next 10 years. It also would force oil companies to report their plans for using their leased lands and waters.
Although 41 million acres of public lands now are leased for oil and gas development, just 12 million acres are producing. Offshore, 38 million acres of the outer continental shelf are leases for oil and gas drilling, but just 6.5 million acres are producing.
But Menendez has suggested that oil companies are leasing federal land — and then not developing it — to put more reserves on their balance sheet and inflate their stock price, while blocking competitors from producing on those sites.
Industry leaders said it was “absurd” to think that oil and gas companies would invest millions to secure leases, pay annual rental rates on those sites and then sit idle on the investments.
Eric Wohlschlegel, a spokesman for the American Petroleum Institute, noted that since leases aren’t indefinite, energy producers already have incentive to develop those resources. Onshore leases typically run for a 10-year period.
“To assume that we’re just sitting on these investments is absurd,” Wohlschlegel said. “The truth is that use-it-or-lose-it is already in place under those contracts. This is a political antic designed to distract the American people from rising gas prices . . . and the fact that we need to get back to work in the Gulf.”
Texas Railroad Commissioner Elizabeth Ames Jones said the lawmakers were ignoring the reality of oil and gas development: not every lease contains those precious hydrocarbons.
“Just because you’ve invested in a lease doesn’t mean that you may find oil and natural gas there,” Jones told the House Natural Resources Committee today. “People have to understand that dry holes are still drilled, even with the latest technology.”
“These are risks that companies make,” she said. They “put their money and their capital on the line,” but that doesn’t definitely mean they will drill. “They may determine after they shoot seismic that there isn’t oil or gas there.”