During the presidential debates last year, Obama kept referring to the eeevil oil companies sitting on non-producing leases and how he wanted to tax them for their non-action. His statement made absolutely no sense to me then based on my 20+ years experience with offshore leases in the Gulf of Mexico. It also made no sense from an economic standpoint for the oil companies. But repetition breeds belief and it became accepted that oil companies were screwing us by sitting on leases.
An oil company pays big money for the privilege to gamble that there is oil down there. They don't want to see that investment wasted and usually need the cash flow it can generate. It's just too valuable to sit on as long as the price of oil is reasonable. Also, the Mineral Management Service gives companies a fixed period of time to "use it or lose it". If there is no activity on a lease, they will take it back. I have seen managers jump through hoops to prevent that from happening as it is a black mark on their records to have to return a potential asset. Of course, there are those leases that are deemed "dry" and are allowed to revert to the government.
In fact, Obama put in 122 million dollars in revenue in his budget for from fees collected for non-producing leases. But now we know that for all the talk about non-producing leases, the government has no clear definition of what constitutes a non-producing lease. Secretary of Interior Salazar told the House Interior Appropriations Subcommittee that the DOI had no clear definition of a non-producing lease.
The story is here.
So, if there is no clear definition of a non-producing lease, how can Obama claim there are hundreds of them costing the taxpayer dearly and how can he propose to tax them????
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3 comments:
90% of leases have non-production clauses, but not all.
http://wilco278.wordpress.com/2008/12/26/exxonmobil-continues-to-act-above-the-law/
That's by a blogger who works on the North Slope. Point Thompson is a large reserve that Exxon refuses to develop because they're waiting on someone else to lay the pipeline. The state and the feds have been going after those leases for 30+ years.
In the GoM, the bigger deal was deepwater drilling vessels. Last year, companies were snapping up leases left and right, knowing it would be quite a while before they could hire a drill ship to explore their prospects. The companies saw the leases as a cheap [lease bids might be 1% of development costs] way to ensure future reserves growth with minimal risk.
Alaska DNR says they have revoked the Point Thompson lease.
As far as the GOM goes, the MMS has to apporve any extension of a lease that is not held by some activity - either exploration or production. It's not a given that the oil companies can hold on to those leases. However, the MMS encouraged deep water by reducing the royalty paid on them, so they share some of the blame for lack of resources.
The Point Thompson lease is still in legal purgatory where it can't be rebid. Exxon still clung to it for 30+ years in the meantime, using all sorts of legal shenanigans to keep it.
MMS has had its own issues as of late:
http://righthandthief.blogspot.com/2008/09/hold-me-thrill-me-kiss-me-drill-me.html
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