Those Unused Oil Leases

Newt Gingrich responds to the charge that oil companies aren't drilling on the oil leases they already have.

Bingaman, Rahall and fellow drilling opponents accuse the oil industry of “sitting on” 68 million acres of “non-producing” leased land. They want to force energy companies to “use” this leased land within ten years – or lose all exploration and drilling rights.

America can only hope the proposed law is Bingaman and Rahall’s clumsy attempt at political jujitsu. The alternative is that the politicians in charge of committees that determine US energy policy are confused and ludicrously disconnected from reality.

First, lease agreements already require that leased land be used in a timely manner. The 1992 Comprehensive Energy Policy Act requires energy companies to comply with lease provisions, and explore expeditiously, or risk forfeiture of the lease. So the Bingaman-Rahall “solution” effectively duplicates current law.

Second, and more disturbingly, Bingaman and Rahall’s groundless accusation and proposed legislation rely on the absurd assumption that every acre of land leased by the government contains oil. Obviously, that’s not the case.

The truth is, finding oil is a long, complex, cumbersome, expensive process.

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Most of the time, all this painstaking, expensive initial analysis concludes that the likelihood is too small to justify drilling an exploratory well, since the cost of a single well can run $1-5 million onshore, and $25-100 million in deep offshore waters. Only one of three onshore wells finds oil or gas in sufficient quantities to produce it profitably; in deep water, only one in five wells is commercial. Thus, only a small percentage of the leased acres end up producing oil.

This is important because it means most of those 68 million acres Bingaman and Rahall want to force oil companies to drill actually don’t have enough oil to make it worth drilling. Either they know that, and are trying to deceive us; or they don’t know it, because they haven’t done their homework.

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That’s hardly “sitting on their leases.” But those leases will be “non-producing” until 2010. Clearly, a “use it or lose it” law will do nothing to change these hard realities.

Further complications often stymie energy companies from obtaining and using leased land.

Every step in the process must be preceded by environmental studies, oil spill response plans, onsite inspections, and permits. The process takes years, and every step is subject to delays, challenges – and litigation.

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We don’t need a “use it or lose it” law – or more cheap-rhetoric, big-oil conspiracies. Congress simply needs to allow drilling on the 60% of onshore federal oil and gas prospects and 85% of Outer Continental Shelf prospects that it has placed off-limits.

Furthermore, instead of a “drill it or lose it” law, we need a “permit or pay” rule:

* When the government sits on permit applications for more than six months, companies no longer have to pay lease rents; instead, they get interest on their bonus payments and expenses to date, and lease terms are extended.

* When environmental groups lose their legal actions, they pay the companies for the court costs, delays and attorney fees.

When you go to the ballot box this fall, remember who’s really behind the outrageous prices you’re paying for the energy that makes your job, home, car and living standards possible.

Remember the simple solution: Issue leases and permits. Drill here. Drill now. Pay less.