Oil Industry's View: Department of the Interior's "Use it or Lose it" a case of Politics Trumping Common Sense

FROM EXXON MOBIL'S BLOG: http://www.exxonmobilperspectives.com/2011/03/30/doi-use-it-or-lose-it-report-politics-trumps-common-sense/


The Department of Interior’s so-called “use it or lose it” report was delivered to the White House yesterday. Rather than being an unbiased analysis of the status of oil and natural gas leases in the United States, the report sadly perpetuates the misguided charge that the oil and gas industry is not developing its existing leases.


For the record, ExxonMobil is actively producing or working 93 percent of its federal leases. Of the remaining 7 percent that are currently inactive, the majority of those leases expires this year and will be returned to the U.S. government.

Back to the report. It claims that “more than two-thirds of offshore leases in the Gulf of Mexico and more than half of onshore leases on federal lands remain “idle.”

A sensational charge – until you read the fine print. To support the claim that the leases are “idle,” the DOI defies common sense to define “inactive leases” as follows:

“Inactive leases,” or leased areas that are not producing nor currently covered by an approved exploration or development plan. These areas 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? Meaning it’s not essential, secondary in nature, or extra activity?

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.”

It is hard to escape the conclusion that this study, along with the “use it or lose it” legislation, is a thinly veiled political ploy – not only for the discrepancy that I just pointed out, but also because there’s already a “use it or lose it” law on the books. Politicians who don’t want to open up access to U.S. energy resources also don’t want to be blamed for high gas prices – so trying to convince Americans that oil companies are sitting on precious oil resources is their strategy. We’ve seen this before, and we’re seeing it again now.

If you read my post on this topic on March 17, then you know this is not a rational argument. Oil companies have a financial responsibility to make investments that produce a return for shareholders. Spending millions of dollars to obtain a lease, and many millions more to study it – and then not producing it if it contains economic amounts of oil and gas supplies – would be a waste of shareholder money.

But even if we set aside the fact that “use it or lose it” is redundant and doesn’t make economic sense – we can’t ignore the fact that this report misrepresents what is considered “activity” in oil and gas exploration.

The timeline from acquiring a lease to actually producing oil or gas takes years. Just because you have a lease doesn’t mean it has oil or gas on it. And even if it does have oil and gas on it, it doesn’t mean production can start right away. Companies spend millions of dollars finding out if the resource is there, and many hundreds of millions more – and several more years – to build the infrastructure to produce it and get it to consumers IF it exists.

So what exactly do we do? Here’s just a short list of all the activities that take place on a lease before it’s producing – and many of these would be considered “inactive” by the DOI’s definition:

•Mapping and surveys
•Surface and subsurface geological/geophysical examinations
•Investigations and studies (including acquisition, reprocessing, and interpretation from seismic, gravity, or magnetic surveys)
•Obtaining and analyzing well data via trading, purchasing and/or drilling of well (including wildcat and appraisal wells)
•Land activities such as negotiating farmouts, joint ventures, acreage trades
•Regulatory activities such as permitting, evaluation of archaeological and biological suitability for well locations
And we do much more. But the fact is that you can’t change geology – sometimes the oil just isn’t there. The DOI claimed in the study that since March 2009, it has offered 90 million acres of offshore oil and gas leases, but that only 5 million were actually leased. That statistic says nothing about the “activity” levels of oil and gas companies – it only says that the government is not leasing land that’s worth exploring.

In fact, the U.S. government has continually prohibited access to the majority of America’s offshore acreage, as well as significant onshore acreage as well. That’s a decision that has implications for the U.S. economy and energy security. One recent study found that opening up federal lands that Congress has kept off-limits for decades could generate $1.7 trillion in government revenue over the life of the resource, create 160,000 jobs by 2030, and increase U.S. oil output by as much as 2 million barrels a day in 2030. Yet for the most part, access to U.S. resources is often denied.

Read more in my previous blog post on this subject, “Let’s lose the ‘use it or lose it’ rhetoric.” Or, take a look at the typical timeline for onshore and offshore leases, as provided in these fact sheets from the American Petroleum Institute.

Gov Quinn Announces $1 Million Effort to Build Electric Vehicle ReCharging System

CHICAGO – February 18, 2011. Governor Pat Quinn today announced an initiative to boost the state’s sustainability efforts through the increased use of electric vehicles. Under the plan, the state will invest $1 million of Illinois Jobs Now! capital funding to install state-of-the-art electric vehicle (EV) charging infrastructure throughout the Chicagoland area.

“This project will encourage greater use of green transportation alternatives by making electric vehicle use more convenient and accessible in one of the most heavily traveled cities in the country,” said Governor Quinn. “Through strategic investments like this, we are encouraging long-term economic growth, supporting innovation and creating the jobs of today and tomorrow.”

This project is expected to be the largest concentration of DC quick-charge stations in the world. Exact locations of the charging stations are still being determined, but will include Midway and O’Hare Airports, grocery stores and shopping centers throughout the Chicagoland area, and parking garages in downtown Chicago. Installation of the network is expected to be completed by the beginning of 2012.

350Green, LLC will install, own and operate the EV charging network. The network will consist of a total of 280 charging stations, including 73 DC quick-charging stations and 146 Level 2 chargers for public use, with an additional 61 Level 2 chargers for the dedicated use of I-GO and Zipcar car-sharing fleets. The DC quick-chargers represent a new technology that will drastically reduce the amount of time it takes to charge a vehicle. A vehicle would now be able to charge in the time it takes to shop at the grocery store, as opposed to charging overnight, which is the current standard.

The $1 million in state capital investment will match $1 million in Clean Cities Grant funds that the city of Chicago received through the American Recovery and Reinvestment Act (ARRA) of 2009. The project is expected to create 18 permanent and temporary jobs, and construction of the network will support 8,500 labor hours. The Illinois Jobs Now! capital construction program has created an estimated 155,000 jobs to date, and is expected to create or retain more than 439,000 jobs over six years.

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