A regrettable product of toxic politics is the durability of blatant falsehood. In his second debate with challenger Mitt Romney, President Barack Obama on Oct. 16 revived his administration's canard about foot-dragging by oil and gas operators on federal leases. On Oct. 22, Rep. Ed Markey (D-Mass.) obediently tried to make the farce appear serious.
"You had a whole bunch of oil companies who had leases on public lands that they weren't using," Obama said in the debate. "So what we said was, you can't just sit on [these leases], decide when you want to drill, when you want to produce, when it's most profitable for you. These are public lands. So if you want to drill on public lands, you use it or you lose it."
Devaluing leases
Those words, if taken seriously, would devalue federal leases and cost the US Treasury millions of dollars in future lease sales. They state that the government, not investors who risk money on leases, dictates timing of drilling and production. A lease so encumbered would be worth much less than one in which the leaseholder makes its own decisions based on its own evaluations. But the president's words amounted simply to campaign bluster.
Didn't they?
Maybe not. They seem now to have set up what Markey touts as "a new investigative report" that "tells Americans for the first time exactly which companies are not using—and also not losing—oil drilling leases in offshore areas in the Gulf of Mexico, withholding oil production from the American people while holding onto their taxpayer-owned land." In a press release, Markey says the study, which he directed in the House Natural Resources Committee, reveals that more than 100 companies hold "but are not drilling on" 3,700 leases in the gulf. The five biggest companies hold leases covering 8 million acres not being drilled.
"The oil companies are sitting on huge reserves of oil that they're not even using, and then they come back asking for more areas to be opened up for them to drill," Markey charges. This statement contradicts itself. Markey can't know "huge reserves of oil" underlie acreage on which no drilling has occurred. No one can. The allegation is laughable by definition.
And if companies did know about the existence of huge reserves, why would they not develop and produce the oil and gas? What motivation can there be not to produce from known reserves? In fact, there is none. The allegation makes no sense.
The overriding suspicion makes no sense. Companies pay millions of dollars to assemble federal lease positions. The commitment of capital provides powerful incentive to explore for, develop, and establish production from whatever oil and gas reserves might exist promptly. Companies don't tie up money for nothing more than the opportunity to pay rentals, fees, and capital charges. Why would they? Markey is making the accusations and needs to address that question. But, of course, an honest answer would derail his ridiculous crusade.
An inventory of leases not on production or for which no exploration or development plan has been approved—"idle," according to Markey and the Interior Department—is a normal and essential part of the offshore business. Offshore work happens sequentially, not all at once. After leasing, permits take time to acquire. Some leases always must be awaiting work. And many leases eventually become condemned and might never host work. These are practicalities of the business, not evidence of foot-dragging.
Baseless assumptions
The push for "use-it-or-lose-it" leasing thus proceeds from baseless assumptions and inexcusable ignorance about industry practice. It should have succumbed long ago to facts and logic. That Obama and his court jesters continue to press the issue raises questions about their commitment to leasing statutes, to constructive energy policy, even to truth.
"Use-it-or-lose-it" leasing is a political sham manufactured from unalloyed deception. Its recurrence in politics betrays abysmal regard in some quarters about the corporate intelligence of America.