API Responds: H.R. 910, and Idle Leases

Welcome to Energy Awareness Week

Hey folks,

Welcome to Energy Awareness Week. Here at the OPNTalk Blog at least. Now just yesterday I told you about the Conference Call that I participated in on Tuesday, where I lead the Question portion off with a question about what they thought of H.R. 910.

Now at the time, it was being worked on in the House and API wanted to wait until they could actually read it. I then, yesterday, went into details on what it is and advised you that it moved forward Tuesday. With a 34-19 vote, all Republicans and three Democrats. The Bill now moves to the Full House for a Vote. Those in favor would like the Full Vote to come before Easter Break, and it is pretty assured to pass in the House.

So yesterday, I received the API response to this. Here it is.

API commends House action to block EPA from raising energy costs

WASHINGTON, March 15, 2011 — Marty Durbin, API executive vice president, applauded Members of the House Energy and Commerce Committee who today approved the Energy Tax Prevention Act of 2011. Durbin said today’s action is an important step toward blocking the EPA from raising energy prices on American consumers and stifling our fragile economic recovery:

“API commends the leadership of Chairman Upton and the bipartisan group of Members who have come together to oppose higher energy prices for American consumers. We are pleased to see this legislation moving forward to prevent EPA from imposing excessive and burdensome regulations that could harm our fragile economic recovery and jeopardize job creation. Congress, not the EPA, is responsible for setting the energy policy of the United States.”

I had a feeling that they would be for this. ANYBODY in their right mind would be for this. YOU, unless you like $4.00 to $5.00 a gallon Gas, should be all for this.

So then a bit later in the Conference Call, I brought up Obama's absurd comments about Idle Leases. I asked API Chief Economist John Felmy about this, and he answered pretty much how I thought he would. Why? Because it's the TRUTH. First, some of those Leases must go along with PERMITS. No PERMITS, no Drilling. Second, in some of these locations, there is just not significant supply to justify the expense of Drilling. Again folks, the Transcript will be posted here as soon as it becomes available.

However, Erik Milito, who is "the Director of Upstream and Industry Operations for API. Erik’s work covers regulatory and legislative matters related to domestic exploration and production, including access to domestic oil and natural gas resources both onshore and offshore. Prior to his current position, Erik served as managing counsel at API, covering a host of issues, including oil and gas leasing, royalty, environmental, fuels, transportation, safety, and civil justice reform." just posted a response to this concept that Sen. Reid attempted to further. Here is what Erik had to say over at Energy Tomorrow.

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.

So there you have it. Again, talk to those that KNOW the FACTS on any situation, and you will be better informed than you will listening to those that DON'T. Or those that have agendas and like to, well, LIE, to further their agendas.

Instead of playing games, this Administration needs to get out of the way, and LET those that actually KNOW what they are doing, have the tools to do it, ACTUALLY help us: jump start the Economy, lower the Unemployment Rate, Lower Energy Costs, and INCREASE Revenue to all levels of Government, Local, State, and Federal.
Peter