US Interior Sec. Ken Salazar often portrays his approach to oil and gas leasing as repair of damage inflicted by the administration of George W. Bush. He thus adopts his own administration's tiresome penchant for blame-shifting. More important than that, however, is the damage he is inflicting, with a growing record of resistance to the development of oil and gas resources, on national energy interests.
Since confirmation of his nomination last Jan. 20, Salazar has fallen into a pattern: He identifies an issue, blames the Bush administration for mishandling it, then implements change, often sweeping, that discourages oil and gas work.
Lease withdrawals
Less than a month after taking office, for example, he withdrew 77 leases offered to producers late in the Bush administration near national parks and other sensitive areas. The offerings had been challenged in court, as such developments often are, and made subject to a temporary restraining order. For a new interior secretary, the litigation was a problem. But effectively starting over was heavy-handed. Later, a study team recommended leasing 17 of the parcels, deferring 52, and withdrawing 8. It also recommended increasing "coordination and collaboration" in leasing decisions.
The outcome of this response to what Salazar repeatedly disparaged as a "rush" to lease the land: fewer acres available for oil and gas development and more bureaucracy.
Soon after that move, Salazar rescinded a Bush administration program for oil shale leases. He objected to the ability of holders of research-and-development leases to expand their acreage and secure a low royalty rate for successful projects. Oil shale researchers said they'd need lease expansion and royalty limits to move development to commercial scale. Salazar instead has moved to limit acreage, leave royalties uncertain, and impose new administrative steps. The combined effect: Discourage oil shale development, which already faces technical problems and substandard economics.
In March, the secretary again showed his leanings on oil and gas leasing by praising enactment of the Omnibus Public Lands Management Act of 2009, which added 2 million acres to the untouchable wilderness system and subjected 26 million acres to a new, thick layer of activity-repellant bureaucracy. More recently, he ended the royalty-in-kind program, a move that will revive disputes between leaseholders and the federal government over valuation of produced oil and gas. An inspector general's report found problems with the department's administration of the program, so the secretary—ever ready to swing the saber—killed it. And the burden on producers grows.
The latest setback to oil and gas activity on federal acreage came hidden in, of all things, the announcement of a federal offshore lease sale. "Continued development in appropriate areas of the Outer Continental Shelf, such as in the areas we will offer in the Gulf of Mexico, is a key component of our efforts to reduce our country's dependence on foreign oil," Salazar said, obviously playing to two unlike-minded audiences at once.
Sale 213 will offer 6,800 unleased blocks covering more than 35.9 million acres in 3-3,400 m of water. The numbers sound substantial. At least this is leasing. But lease values have shrunk. Initial terms of leases involving water depths of 400-800 m will drop from 8 years to 5 years. Those with water depths of 800-1,600 m will fall to 7 years from 10 years. Spudding of an exploratory well on a lease reinstates the larger value.
"This new approach to lease terms will better ensure that taxpayer resources are being developed in a timely manner," Salazar said. The ludicrous presumption is that he knows better than the producers he regulates, whose money is at risk, when and where drilling should occur. Now producers interested in new onshore leases must wonder what changes await.
Overhaul unnecessary
Federal oil and gas leasing didn't need this overhaul. Where allowed to work, the system offered reasonable consistency and generally encouraged exploration and development.
Salazar's changes erode those advantages. They address administrative problems with stiffened regulation that will discourage work essential to future oil and gas supplies. They do not, therefore, represent improvement.
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