Millions of acres of issued leases idle, DOI report says

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Mar. 29 -- More than two thirds of the federal oil and gas leases in the Gulf of Mexico and more than half the federal leases onshore remain idle, the US Department of the Interior said as it released a report requested by President Barack Obama. The idle leases either aren’t producing or aren’t being actively explored and developed, it added.

“We continue to support safe and responsible domestic energy production, and as this report shows millions of acres that have already been leased to industry for oil and gas productions sit idle,” US Interior Sec. Ken Salazar said. “As we continue to offer new areas onshore and offshore for leasing, as we have done over the last 2 years, we will also be exploring ways to provide incentives to companies to bring production online quickly and safely.”

Oil and gas industry groups have said that such assessments don’t recognize the time leaseholders spend evaluating their tracts or obtaining the necessary permits under increasingly rigorous regulatory regimes. The report provides additional information, but still fails to consider all the steps necessary before actual production can begin from a lease, Kathleen Sgamma, government affairs director at the Western Energy Alliance in Denver, told OGJ on Mar. 29.

According to the report, 4,913 offshore leases totaling 27.5 million acres issued by what was then the US Minerals Management Service, or 70% of the 7,061 leases totaling nearly 38 million acres, are neither producing nor currently subject to approved or pending exploration or development plans. This includes more than 23.8 million inactive leased acres comprised of 4,251 tracts in the Gulf of Mexico, which potentially could hold more than 11 billion bbl of crude oil and 50 tcf of gas, DOI said.

Onshore, the report stated that of the 50,303 leases totaling almost 38.3 million acres which the US Bureau of Land Management has issued, 22,663 totaling more than 21.6 million acres are not being produced or explored. This represents 57% of the leased acreage and 45% of the issued leases, the report said. It said the annual ratio of onshore drilling permit applications received to the number processed has remained in a constant range the past 10 years, while producing acres as a percentage of leased acres have averaged about 30% during the same period.

Policy options
DOI said it is exploring policy options to provide producers with more incentives to rapidly develop resources from current and future federal oil and gas leases. Charging a fee for nonproducing federal onshore and offshore leases to encourage timelier production is part of the Obama administration’s proposed fiscal 2012 budget for DOI. US Rep. Edward J. Markey (D-Mass.), the House Natural Resources Committee’s ranking minority member, said on Mar. 29 that the new report illustrates why “use it or lose it” legislation, which he and Rep. Rush Holt (D-NJ) have introduced, is needed.

Other oil and gas groups responded critically to the report’s release. “Yet again this administration seeks to increase politics rather than increase energy production,” Erik Milito, the American Petroleum Institute’s upstream and industry operations director, said Mar. 29. “This is an effort to distract the American people from rising [gasoline] prices, and the fact that the administration has been delaying, deferring or denying access to our oil and natural gas resources here at home,” Milito said.

He continued, “Lease sales have been delayed or cancelled, and this year, for the first time since 1957, we may not have a single offshore lease sale. It would be the first time since 1963 with no gulf lease sale,” he continued. “The administration needs to stop playing politics and promoting oil production abroad, as it did last week in Brazil, and get Americans back to work and our energy policy back on track."

National Ocean Industries Association Pres. Randall B. Luthi, who was MMS director from July 2007 to January 2009, expressed disappointment that “use it or lose it” rhetoric has reemerged. “So let’s set the record straight,” he said on Mar. 29. “[DOI’s] definition of inactive leases include ones where seismic and other survey work are ongoing. These are necessary precursors to drilling and production and will also improve the success rate of exploratory wells. Their conduct cannot be considered ‘inactivity’ by any measure.”

Luthi said DOI also seems to be arguing that every lease block holds the same production potential, when oil and gas reservoirs are not uniformly distributed beneath every mile of seabed. Existing federal laws also require leaseholders to begin producing within the lease’s time period or lose the tract, he added. “The nonproducing lease initiative is a solution in search of a problem,” he suggested. “We would be better served if [DOI’s] valuable resources were focused on approving exploration plans, environmental analyses, and permits rather than tallying up so-called inactive leases.”

Contact Nick Snow at nicks@pennwell.com.

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