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Administration Claims Energy Industry Sitting on Leases

More than 70% of the offshore acres under lease to oil and natural gas producers are inactive, while 56% of onshore leases on public lands are not being used, according to an updated report from the Department of Interior. Producers quickly responded by accusing the Obama administration of using them as a "scapegoat" for its failed energy policies.

Of the total 35.8 million acres leased in the offshore, the Obama administration report, which was released Tuesday, estimated that 25.7 million are inactive, and only 10 million are actively producing.

Most of the acreage (31.86 million) has been leased in the Gulf of Mexico, which also happens to be the location of the largest number of inactive leased acres (22 million), according to the report. In the Lower 48 states, an additional 20.8 million acres, or 56% of onshore lease acres, remain idle, about the same as last year, and there are close to 7,000 approved permits for drilling on federal and Native American lands that have not yet been drilled by companies, the Interior report said.

"These lands and waters belong to the American people, and they expect those energy supplies to be developed in a timely and responsible manner and with a fair return to taxpayers," said Interior Secretary Ken Salazar.

Groups representing oil and gas producers were quick to react to the report.

"Once again the administration is trotting out claims about idle leases to divert attention from the fact it has been restricting oil and natural gas development, leasing less often, shortening lease terms, and going slow on permit approvals -- actions which have undermined public support for the administration on energy," said American Petroleum Institute President Jack Gerard.

"It's absurd to contend the industry pays the government billions of dollars every year in bonus bids and rents to leave land idle. It develops leases as expeditiously as it can -- often in the face of inordinate delays the administration's own policies create," he noted.

He pointed out that it took the Obama administration four years to approve Anadarko Petroleum Corp.'s drilling project in the Uintah Basin in eastern Utah (see Daily GPI, May 9).

The Independent Petroleum Association of America (IPAA) said the report contained "false accusations" about oil and gas production and obscured the "complexity" of the industry, while using producers as a "scapegoat for [its] failed national energy policies."

U.S. oil and gas producers "pay for the right to explore on leased land, as well as [pay] rental fee. The government is not losing money," the IPAA said. "Leases don't come with MapQuest directions that say 'drill here for 50 million bbl.' Companies do develop their leases, but producing oil and natural gas requires many steps; gathering funding, exploring, getting permits, drilling and finally producing the oil or natural. [And then they] have to be able to transport it to market. The entire process can take years."

In response to claims of inactive offshore leases, the IPAA said that "many offshore leases are five years old or less -- with a moratorium in between -- [so] it's not surprising that they aren't producing energy yet."

The report is sure to provide ammunition for Democrats, who have in the past tried to pass legislation that would compel the industry to either drill or lose their leases. House Democrats have accused the industry of "stockpiling" leases and previously said operators have enough acreage to produce an additional 4.8 million b/d of crude oil and 44.7 Bcf/d of gas.

In March 2011 Reps. Edward Markey (D-MA) and Rush Holt (D-NJ) introduced legislation to establish an escalating fee on the "tens of millions of acres of public lands" that producers have under lease but which are not producing (see Daily GPI, March 4, 2011). And as part of its fiscal year 2012 budget, the Bureau of Land Management has proposed a $4/acre fee to encourage the industry to develop leases in a timely manner (see Daily GPI, Feb. 15).

The Obama administration proposed such a fee in fiscal year 2011, but Markey has been unsuccessful in past attempts to push the so-called "use it or lose it" legislation through Congress (see Daily GPI, April 1, 2010; Jan. 19, 2007).

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