Let't take a look at all those "inactive" oil leases ...

[Tigermike 3,046]

The Democrats and those on this forum spouting the dim talking points 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, clueless legislation is their only answer - 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.

That 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. Well now, that posits that oil and gas is everywhere and all you have to do is drill. I wish that were the case, if it were, I'd have an oil rig in my backyard pumping out crude right now. The fact is, you're more likely to not to find enough recoverable oil and gas on a lease than you are.

The 'Idle' Oil Field Fallacy

By RED CAVANEY

June 20, 2008; Page A13

A bill introduced in Congress this week would "compel" oil and natural gas companies to produce from federal lands they are leasing. If only it were that easy to find and produce oil. Imagine, an act of Congress that could do what geology could not.

These lawmakers ask why oil and gas companies want more access to federal lands to drill if they aren't using all of the 68 million acres they already have? Anyone with even the most basic understanding of how oil and natural gas are produced – and this should include many members of Congress – knows that claims of "idle" leases are a diversionary feint.

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." (Remember me telling you that over the past couple of weeks?)

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.

Our companies have made tremendous strides in developing cutting-edge exploration technology. But they are not magicians. They cannot produce oil or natural gas where it does not exist. A significant percentage of federal leases simply may not contain oil and natural gas, especially in commercial quantities. (As I have said in several post here. But the dims either can't or don't want to believe.)

As I've often said, the first step in our business is called "exploration" for a reason. Exploration is time consuming, very costly and involves a great deal of risk. Importantly, you see neither a drop of usable oil nor a cubic foot of natural gas while it is going on. But it is absolutely essential, and there is nothing "idle" about it. Without the exploration that took place years ago, less domestic oil and natural gas would be available today to meet consumer demand.

In reality, a lease is simply a block on a map, with no guarantee that it contains any resources. If all of them did, one could simply pay for the lease, haul in equipment and start pumping oil. But that only happens in fiction.

And it happens in the minds of those who use the undeveloped-lease argument as a smokescreen to mask their intent to keep America's vast energy resources locked up underground, despite increasingly strong consumer demand for oil and natural gas. For exploration to take place, our companies need access to the areas – offshore and onshore – that we know have the potential to produce the oil and natural gas consumers will need, if ours is to remain a viable economy in an increasingly competitive global marketplace.

Today's short-term need was yesterday's long-term opportunity. If Congress had acted on that opportunity years ago, America would not be in the energy bind it finds itself in today. Working with industry, Congress now has the opportunity to help secure America's energy future. It should not miss the chance again.

Mr. Cavaney is president and CEO of the American Petroleum Institute, the trade association that represents America's oil and natural gas industry.

link

If you would like to get to the literal bottom-line point of all of this, Richard Ranger, a senior policy advisor with the API gives you that side of the story: PDF

You can say that Mr. Cavaney works for API, well sure he does. But does that mean he is being dishonest? No it does not.

[Justin5 20]

Simple question, why do they continue to pay for the lands after they determine not to use them?

I'm honestly curious, no bs, I just can't understand that part.

Edit: In addition, what is the time period that the oil company must give up the lease back to the government?

[GoAU 1,600]

There is most likely a term on the lease that the companies are obligated to honor - like when you lease a car.

[Tigermike 3,046]

Simple question, why do they continue to pay for the lands after they determine not to use them?

I'm honestly curious, no bs, I just can't understand that part.

Edit: In addition, what is the time period that the oil company must give up the lease back to the government?

When the leases are bought, the purchaser agrees to pay the lease fee for a certain time period. If they decide to develop the lease then the owner of the land will get more $$$$$ If those wells produce oil or gas, then the land owner gets even more $$$$$$$. When it comes to off shore leases, the royalty fees $$$$$$ goes to the states in whose water the lease is located. If it were on land then the land owner would begin receiving royalty payments. Or that is the way I understand it. But I don't own any land that is or has been drilled on and therefore I am not receiving any royalty fees.

[Justin5 20]

Simple question, why do they continue to pay for the lands after they determine not to use them?

I'm honestly curious, no bs, I just can't understand that part.

Edit: In addition, what is the time period that the oil company must give up the lease back to the government?

When the leases are bought, the purchaser agrees to pay the lease fee for a certain time period. If they decide to develop the lease then the owner of the land will get more $$$$$ If those wells produce oil or gas, then the land owner gets even more $$$$$$$. When it comes to off shore leases, the royalty fees $$$$$$ goes to the states in whose water the lease is located. If it were on land then the land owner would begin receiving royalty payments. Or that is the way I understand it. But I don't own any land that is or has been drilled on and therefore I am not receiving any royalty fees.

Ok, good info, thx. Still, is it like GoAU said in that you honor the length of the lease?

[Tigermike 3,046]

Simple question, why do they continue to pay for the lands after they determine not to use them?

I'm honestly curious, no bs, I just can't understand that part.

Edit: In addition, what is the time period that the oil company must give up the lease back to the government?

When the leases are bought, the purchaser agrees to pay the lease fee for a certain time period. If they decide to develop the lease then the owner of the land will get more $$$$$ If those wells produce oil or gas, then the land owner gets even more $$$$$$$. When it comes to off shore leases, the royalty fees $$$$$$ goes to the states in whose water the lease is located. If it were on land then the land owner would begin receiving royalty payments. Or that is the way I understand it. But I don't own any land that is or has been drilled on and therefore I am not receiving any royalty fees.

Ok, good info, thx. Still, is it like GoAU said in that you honor the length of the lease?

Yes and at that point the leases are either renewed or allowed to lapse. The lease owner can sell the lease to the highest bidder. If anyone wants to bid. In the case of the states and the Fed govt there are lease (sells) auctions.