Campaign Corner - Black Gold, That Is :o)

Alert: This entry will be more biased toward the Republican Viewpoint, but I have not made up my mind regarding drilling off the coasts and in Alaska.  From all I have read over the years, the amount of oil in those locations would supply America for less than 10 years, and would take at least that long to bring most of the production on line.  At one time, I actually had an investment and purchased a partial lease, which was then subsequently purchased by an oil company, resulting in a bit of profit.  The bottom line is that leases are a form of speculation, purchased based on the terrain, similar sites, and a calculated risk that there will be oil [or other commodities or minerals] at that location.  The main purpose of this entry is to give you a perspective regarding the dialogue and bantering that is occurring in the news regarding To-Drill-Or-Not-To-Drill.

 

The data for this entry [parsed down to reflect my thoughts, and some of the more blatant comments deleted] came from the following site:  http://www.rightwingnews.com/mt331/2008/06/about_those_inactive_oil_lease.php

 

The Democrats have answered the "drill here, drill now" crowd by saying that 80+% of the leases presently owned by oil companies are non-producing.  As usual, their answer is clueless legislation - they would, by law, compel the oil and natural gas companies to produce from the federal lands they're presently leasing before talking about any additional leases. And since they're obviously not doing that at present, or so the reasoning goes, there's no need for more leases or opening more territory for leases.

This position assumes two things. One is that all of those leases will produce oil and gas and the oil companies just aren't doing anything to produce it. Naturally, that posits that oil and gas is everywhere and all you have to do is drill. The fact is, you're more likely, by a lot, not to find enough recoverable oil and gas on a lease than you are.

Red Cavaney of API covers the second part of why this is absolute nonsense in a WSJ article: 

 

A company bids for and buys a lease because it believes there is a possibility that it may yield enough oil or natural gas to make the cost of the lease, and the costs of exploration and production, commercially viable. The U.S. government received $3.7 billion from company bids in a single lease sale in March 2008.  

However, until the actual exploration is complete, a company does not know whether the lease will be productive. If, through exploration, it finds there is no oil or natural gas underneath a lease - or that there is not enough to justify the tremendous investment required to bring it to the surface - the company cuts its losses by moving on to more promising leases. Yet it continues to pay rent on the lease, atop a leasing bonus fee.

In addition, if the company does not develop the lease within a certain period of time, it must return it to the federal government, forfeiting all its costs. All during this active exploration and evaluation phase, however, the lease is listed as "nonproducing."

Obviously, companies want to start producing from active fields as soon as possible. However, there are a number of time-consuming steps to be taken before they can do so: Delineation wells must be drilled to size the field, government permits must be obtained, and complex production facilities must be engineered and installed. All this takes considerable time, and during that time, the lease is also listed as "nonproducing."

Because a lease is not producing, critics tag it as "idle" when, in reality, it is typically being actively explored and developed. Multiply these real-world circumstances by hundreds or thousands of leases, and you end up with the seemingly damning but inaccurate figures our critics cite.

Tags: Offshore Drilling, Alaska, Leases