The People of America's Oil and Natural Gas Indusry

The 'Use It or Lose It' Deception

Mark Green

Mark Green
Posted March 16, 2011

Interior Secretary Ken Salazar had some good things to say yesterday:

"Applications for federal permits to drill on public and American Indian lands are expected to increase by close to 50 percent, U.S. Interior Secretary Ken Salazar said Tuesday."

Yes! Absolutely yes! The oil and natural gas industry already invests heavily in America and stands ready to invest even more.

"He also said he expects his agency to approve more offshore drilling permits in the coming days."

Yes! Absolutely yes! It would be wonderful if the federal government would let us make that investment in America. But then the good news stopped as the secretary followed that with the administration's latest misinformation about oil and natural gas development...

"It's important for us to recognize that the inventory that has been leased out to oil and gas companies is 41 million acres and only 12 million of that has been developed at this point, so that means there's a huge amount of inventory of public lands where there has been interest on the part of oil and gas companies to lease those lands and they have in fact been leased," he said.

...joining other Democratic leaders on the "no" energy policy bandwagon. This from Senator Reid's office Tuesday:

"Oil and gas companies are currently sitting on approximately 60 million acres of oil and gas leases that are going unused. At the same time they are holding back on domestic production, these same oil companies are reaping record profits from high gas prices. And Republicans are protecting this shell game, at a high cost to consumers."

When it comes to crafting a sensible energy policy, once again politics carry the day. This notion of "use it or lose it" is a stale, invalid argument and a political distraction to rising gasoline prices combined with the fact that we're not doing enough in the Gulf to use our own resources and put Americans back to work. Let's get back on track with some facts:

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 level of capital expenditures by the industry to develop these leases demonstrates their commitment to find oil and gas. For example, the industry spent more than $37 billion (with a B) in capital expenditures to develop deep water Gulf leases issued between 1996 and 2000. In addition they paid more than $4 billion (with a B) in bonus bids to obtain those leases in the first place. With that level of investment, it is hard to argue that the industry is not working hard to develop the leases it owns.

Finally, these arguments simply ignore the basics of the oil and natural gas industry. Companies purchase leases for the right to explore for the resources. You don't know if a lease actually contains oil or natural gas until you move forward and drill an exploratory well. Companies purchase a large portfolio of leases to give them the greatest opportunity to find oil and natural gas. They work hard to survey and study all of their leases with the hope that they can narrow the list down to a subset that have the best likelihood of actually containing oil or natural gas. However, it is not uncommon for a company to spend $100 million to drill a well and find no oil or natural gas. In fact, companies drill more wells that have no oil or natural gas than wells that actually do.

With one election just concluded, the positioning for the next one has started, but it's time to stop the stupid and start getting smart on creating jobs, growing our economy and increasing our energy security.

Updated on March 31, 2011: Read my latest post on the nation's energy policy: Administration Misses Energy Reality


Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.