So, Drill Already: Obama to Oil Industry

Producers Call 'Absurd' Government's Claim That They Are Idle

ByAlan Farnham
May 17, 2012, 12:26 PM

May 17, 2012 -- After a drumbeat of complaints from energy companies that the Obama administration is blocking domestic oil and gas production, the Interior department released a report claiming that U.S. oil and gas producers are sitting on millions of acres of idle government land leases.

Secretary of the Interior Ken Salazar says that if producers were sincere about wanting to increase energy production, they would activate millions of acres of public land already leased to them. What should they be doing on that land? Drilling.

In a statement issued Tuesday, Salazar says the administration wants companies "to develop the tens of millions of acres they've already leased but have left sitting idle."

A report released by the Department of the Interior claims that of 36 million government acres leased offshore for oil and gas production, 72 percent sit idle. Onshore, in the lower 48 states, says the report, more than half of federally leased acreage sits idle, "neither producing nor under active exploration or development by companies who hold those leases."

The American Petroleum Institute calls the administration's claim "absurd" and "willfully misleading."

In a statement, API CEO Jack Gerard says that just because a lease doesn't fit the government's definition of active doesn't mean it's idle. Where a lease truly is idle, the reason often is that the producer must hold off drilling while they wait years to get the necessary government permissions.

Erik Milito, API director of upstream and industry operations, says there's another reason some leases aren't being used: There's only a 30 to 40 percent success rate to finding oil. A producer has to narrow down its leases to find the few ones good enough for drilling.

The fallacy behind Salazar's assertion--which Milito characterizes as being, 'We don't have to open up any more public land to you, because you're not using the leases you've already got'--is the belief "that you just put a pipe in the ground, and you're ready to go--that there's always oil there."

Kathleen Sgamma, vice president of government and public affairs for the Western Energy Alliance, whose members produce, she says, 27 percent of the natural gas and 14 percent of the oil in the U.S., cites a more basic reason a lease may be idle: Its oil and gas may be uneconomic to extract.

As energy prices fluctuate, and as technology improves, she says, idle leases are brought into production. The most dramatic and most recent example is the 200,000-square-mile Baaken oil field underlying North Dakota and Montana. As recently as five years ago, she says, many leases here sat idle. Then technology and economics made production possible, and production boomed.

The DOI report, she says, "Actually is useful, since it shows that we're becoming more efficient at operating on public lands. To have 44 percent of public lands in production is very high, compared to the 30 percent it's been historically. There will always be maybe 30 percent of leases that don't pan out. But of the rest, we estimate half are somewhere in the [drilling] process. If government is truly serious about increasing production, they would remove some of the red tape."

The Alliance says that when you add up the time required for prospecting, drilling, and waiting around for government approvals, 19 years can pass before a lessee actually sees oil. During part of that time, the government counts the lease inactive.

She says she knows the government can move energy projects ahead more aggressively when it wants to, because it has done exactly that with wind and solar projects. It's only politics, she says, that accounts for the different treatment accorded oil and gas.

A spokesman for the Department of the Interior, asked to respond to the industry's contention that DOI's report is both misleading and absurd, says, "The report speaks for itself. The notion that we have somehow locked up federal lands clearly doesn't square with the facts. Our goal is to continue expanding safe and responsible development, and we will continue to take steps to deliver on that priority."

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