More than two-thirds of the offshore oil and natural gas leases in the Gulf of Mexico (GOM) and more than half of the onshore leases on federal lands remain idle, according to a report requested by President Obama and released last Tuesday by the Interior Department. The oil and natural gas industry immediately shot back, saying that if anyone was to blame for idle leases it was the federal government because of the sluggish permitting process.

The report concluded that about 70% of the undiscovered technically recoverable resources currently under lease in all areas of the federal GOM are not producing or not subject to approved or pending exploration/development plans. In March, Obama ordered Interior to report to him on “how many of these leases are going undeveloped…so that we can encourage companies to develop the leases they hold and produce American energy” (see NGI, March 21).

Of the 34 million acres under lease in the GOM as of March 1, Interior estimates that 23.8 million acres have inactive leases, which potentially it said could hold more than 11.6 b/d and 59.2 Tcf of natural gas. It said only 6.3 million acres in the Gulf are producing.

In most of the offshore areas — GOM, Pacific, Alaska — an estimated 37.9 million acres are under lease, of which 27.5 million are considered inactive, according to Interior.

For onshore leases, the review found that approximately 45% of all leases on federal land and about 57% of total onshore acres under lease were inactive as of March 14. That means that out of a total of more than 38 million leased onshore acres, almost 22 million leased onshore acres on public lands are nonproducing, according to Interior.

It estimated that 27,640 oil and gas leases are producing on public lands, while 22,663 leases are not.

The department said it is evaluating policy options to provide companies with additional incentives for the more rapid development of oil and gas production from existing and future leases, such as shorter lease terms and graduated royalty payments (see related story).

The industry fired back at the Obama administration. “The administration is again blaming oil and natural gas companies for failing to produce on federal lands, yet it is the very same administration that is throwing up new obstacles to development,” said Kathleen Sgamma, director of government and public affairs for the Western Energy Alliance (WEA), which represents independent producers in the West.

“The truth is that companies are doing all they can to develop federal energy resources, but a lease is not a green light to drill — it’s the first step in a long, expensive process that is fraught with bureaucratic red tape and lawsuits by environmental groups determined to stop domestic energy development,” she said.

“It’s a paradoxical situation in which the government has created a cumbersome process that takes years to complete, environmental groups throw up legal roadblocks at every stage, and then the government and environmental lobby turn around and blame the industry for not ‘diligently developing.'”

According to Sgamma, “an oil and natural gas lease is no more than a definite maybe — maybe you’ll get through all the environmental analyses and regulatory hurdles, maybe you’ll get permission to drill, maybe your project won’t be held up by legal challenges from obstructionist groups, [and] maybe you’ll find oil or natural gas.

“If the president is really concerned about undeveloped leases and domestic energy production, he would direct the Department of Interior to roll back some of the eight layers of analysis and regulation now imposed on western energy producers.”

The WEA said it plans to come to Washington, DC, this week with 50 members, 10 state representatives, county commissioners, ranchers and conservationists to dispel the “oft-repeated myth” that oil and gas producers are idly sitting on leases.”Western Energy Alliance will present to Congress real solutions and reasonable recommendations to increase onshore domestic energy production,” said Marc Smith, WEA’s executive director.

The report “sadly perpetuates the misguided charge that the oil and gas industry is not developing its existing leases,” according to ExxonMobil’s Perspectives Blog. “For the record, ExxonMobil is actively producing or working 93% of its federal leases. Of the remaining 7% that are currently inactive, the majority of those leases expire this year and will be returned to the U.S. government,” it said.

ExxonMobil took issue with the report’s definition of an inactive lease or nonproducing leased areas, which Interior said could include areas that may be subject to certain “ancillary activities” such as geophysical and geotechnical analysis, including seismic and other types of surveys.

“Did they just call a seismic survey — one of the most fundamental activities of finding oil and natural gas — ancillary?…Yes, they did. And that proves my point. You don’t have to be an industry expert to know that seismic surveys — along with a whole host of other activities — are among the most essential activities in oil and gas exploration, and anything but a sign of ‘inactivity,'” according to the ExxonMobil blog.

“It is ridiculous for anyone to imply that these companies [producers] would be willing to spend billions of dollars to acquire leases and then simply sit on them while their competitors around the world are busy producing oil and natural gas,” said Erik Milito, director of the American Petroleum Institute’s (API) upstream and industry operations. “We have heard these tired charges before and we have refuted them with the facts.”

In general, from purchase of an offshore lease to first production can take anywhere from seven to 10 years in areas that have existing infrastructure, he said. With respect to onshore leases, the entire process — from acquisition of a lease to production — “can take as little as a few years; and in some cases as much as almost 10 years,” API said.

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