“There is more we can do, however. For example, right now, the industry holds leases on tens of millions of acres — both offshore and on land — where they aren’t producing a thing,” the President said, announcing he had asked the Department of Interior “to determine just how many of these leases are going undeveloped.”
“People deserve to know that the energy they depend on is being developed in a timely manner,” President Obama continued.
On Wednesday, three Senate Democrats reinforced the President’s misdirection by introducing S. 600, a bill to promote the diligent development of Federal oil and gas leases. At a news conference, chief sponsor Sen. Robert Menendez (D-NJ) dubbed the measure the “Use It or Lose It” bill. From the news release, “Senators Demand Oil Companies ‘Use It or Lose It’ on Drilling Leases“:
Under current law, oil companies can lease possible oil reserves on Federal land regardless of whether they are producing oil on that land or even have plans to produce oil there. In some cases, oil companies are leasing – but failing to develop – federal land in order to book more reserves on their balance sheet and inflate their stock price. In others, oil companies are attempting to prevent competitors from producing on those acres.
One can appreciate the President and Senators’ motivation to deflect the public’s attention from the Administration’s failure to promote domestic energy development. Unfortunately, in this display of message discipline, the message is bunk.
Erik Milito at the American Petroleum Institute explained the realities of oil and gas leasing at EnergyTomorrow.org, the API’s blog, in a post appropriately titled, “The ‘Use It or Lose It’ Deception“:
The administration itself is preventing the industry from developing these leases because it is not issuing permits to drill or conduct seismic studies of these leases. They want the industry to develop the leases it already possesses, but they won’t grant the permits to do so.
Companies pay millions of dollars to acquire these leases (each lease costs at least $250,000 and some have gone for more than $100,000,000), further fees for renting the leases and the leases have a finite term. If a company does not produce oil or gas from a lease then they are required to return it to the government. In other words “use it or lose it” is already the law.
These are very successful and sophisticated companies that are engaged in this business and it makes no logical sense for companies to pay millions of dollars to purchase leases, sit on them for 10 years, and then give them back to the government. They make money by supplying the American economy with the energy it needs to grow, not from sitting on assets.
The fact that the companies invest billions of dollars to develop these leases demonstrates their commitment to finding oil and gas, Milito explains. And the argument ignores the basic reality of the oil and natural gas industry, that companies purchase leases in order to explore for resources, and one cannot ascertain if they will produce until exploratory wells are drilled.
The President knows these facts, and if he wants a detailed accounting of the leases, he should instruct Secretary Salazar to hit the “print” command to produce a list. This month’s revival of the “use or lose it” canard is meant to evade the serious discussion — the accountability — about the critically needed development of America’s abundant domestic energy resources. It’s transparent politics.