Here’s the way the industry actually works, written from the perspective of a fellow who has been working with energy companies for about three decades: When federal lands go up for lease, companies bid on them with an eye toward possible long-term production. There’s no guarantee that a particular area will yield enough oil or gas to generate a profit, so every lease involves what is more or less an educated gamble.
It should be noted that Outer Continental Shelf (OCS) lease areas are, in the scheme of things, pretty small. (These are the deepwater areas in the Gulf and along the Atlantic coast). Accordingly, it’s common for bidders to secure leases to multiple leases covering contiguous areas. The flip side of that strategy is that if the lease-holder performs some further exploration and determines that one lease area isn’t profitable, then he will not pursue contiguous lease areas. This means large swaths of potential production areas will ultimately go untapped.
It should also be understood that energy companies don’t bid on a lease because they know that they’ll find oil or gas — they bid because they believe there’s a possibility that they might find oil or gas. When Reid, Salazar, Menendez and the rest of the left tries to paint a picture that suggests energy companies are deliberately sitting on known reserves, they’re being intentionally disingenuous or willfully ignorant. No one outside of OPEC is going to sit on proven, profitable reserves in this market.
Once an energy company secures a lease, the next step is conducting a seismic survey. This provides the company with a much greater level of surety that it can make a profit. Before it can conduct a seismic survey, the company must first obtain a permit. If the seismic survey looks promising, the company then must obtain an additional permit to drill exploratory wells. The farther along in this process the company goes, the more money it expends.
Right now, the Obama administration is severely restricting the issuance of permits to conduct seismic studies and to drill exploratory wells. The policy is commonly referred to as “permit-torium” within the energy industry. That is: while the Obama administration has not officially declared a moratorium on drilling, the fact that it has basically refused to issue permits for seismic studies and new drilling in all but a few cases effectively amounts to a moratorium.
But, let’s ignore all of the facts detailed above. Let’s pretend that energy companies are actually knowingly sitting atop of vast oil reserves that they stubbornly refuse to tap. Would we then need a “use it or lose it” law? The answer is no, because “use it or lose it” already exists. Public land energy leases have five to ten year terms (depending on the lease). If the lease-holder can’t produce oil or gas within that time, the lease expires.
And so the bottom line is this: not only does “use it or lose it” ignore the realities of energy production, it’s a superfluous concept. Energy companies are already subject to “use it or lose it.” The only thing standing in their way is an administration that demands the latter, without allowing the former.
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