The People of America's Oil and Natural Gas Indusry

Shorter Leases Could Lead to Less U.S. Energy

Jane Van Ryan

Jane Van Ryan
Posted February 12, 2010

interactive_lease_timeline.JPGThe Interior Department's Minerals Management Service (MMS) yesterday announced that it is shortening the lease terms for many offshore Gulf of Mexico oil and natural gas prospects. In a statement, MMS announced it would offer leases to energy companies in March, but that the leasing periods would be reduced from ten years to seven years for leases in depths of 800 to 1,600 meters. Three-year extensions could be made available to drillers who begin a well during the initial leasing term.

(Learn more about the leasing process with our interactive timeline.)

Similarly, leases in shallower water (400-800 meters) will last five years with possible three-year extensions. Leases in ultra-deep waters (greater than 1,600 meters) will have terms of ten years.

While it's good news that the March 17th lease sale is moving forward, API believes the shortened terms could discourage oil and natural gas exploration and production. In a letter sent to MMS in December, API explained that the Gulf of Mexico is a mature area where the easy-to-find resources have already been discovered. The remaining energy requires creative approaches that are often quite time-consuming.

"The complex geology found in the Gulf of Mexico requires long lead times to collect, process, and interpret geological and geophysical data and schemes. Shortening lease terms may result in a scenario where industry will not be willing to take the risks needed to test novel geologic and technological theories because the lease terms will not allow the time needed to adequately test them. The likely unfortunate end result will be less revenue from lease sales, fewer discoveries, and less offshore oil and natural gas production."

Further discouraging development is that fact that even the most straightforward leasing process requires years to bid on sites, get approvals, wait for public comment and fight delays - all before the actual drilling begins.

MMS estimates that the area to be leased could contain up to 1.3 billion barrels of oil and up to 5.4 trillion cubic feet of natural gas. Finding and producing these resources could help to create jobs, provide funding for federal, state and local services, and improve the nation's energy security.