Crossposted from
UNBOSSED
I've long wondered WHY the oil and gas industry is working at such a furious pace to gain oil and gas leases throughout the west when they can't even drill the ones they have!
Colleugues of mine are wondering the same thing and I've tried to bring together some of the ideas that have been kicked around.
Currently,
about 40 MILLION acres of your land is leased for oil and gas development. However, only about 25% of that is being drilled. 80% of the public land leases in Wyoming are not producing. 83% of the leased areas in Montana are not being drilled. Its the same throughout the west: 71% in Colorado, 78% in Utah, 36% in New Mexico and nearly 100% in Nevada. In FY 2004, the BLM issued 6,130 drilling permits (a record). Industry drilled 2,702 wells on those permits. 3,400+ went undrilled. It was virtually the same thing in 2005 and will be again in 2006.
So, whats going on here? Hoarding. But why?
Well, for one, The Bush Administration and many of their key allies in Congress are PHILOSOPHICALLY OPPOSED to the very idea of public lands and they want to privatize them. How do they manage that when the public lands are so popular? Land speculation a al 1888. The Bush-enhanced energy crisis is but one of many tools the Bushites are using to take away your land.
They're doing it in many ways. One is the energy rush. Others include the 2005 Bush policy that states or counties can set up a network of legally recognized "highways" through National Forests and Wilderness Areas. Even if the "highway" in question is little more than an old mining trail on a faded map, it could legally be privatized -- used, expanded, even paved if the administration gave up claim to the land. There is the perverted use of the 1872 Mining Law that allows private industry to lay claim to public land for mineral extraction - over 9 million acres of your land has disappeared this way.
But I digress. Ideology accounts for alot of whats going on here, but there is more.
I have the sense that there is a lotta-bit of the "while the cats away, the mice will play" thing happening. Industry has a friendly administration, totally content to look the other way while our land, air and water are laid waste. Industry knows that they wont have such a favorable environment forever, so they are snatching up the leases as they can.
Then there is the aspect of holding the public's land hostage for large future payouts. Industry is snatching up and hoarding leases in Utah wilderness study areas, Colorado roadless areas and municipal watersheds (most recently the western Colorado towns of Palisade and Grand Junction). It will cost we taxpayers a fortune to buy back these leases once they are issued. And, we will want to buy them back. In many cases, we HAVE TO.
Then, there is a Wall St. issue. By hoarding public land leases in places where the USGS thinks oil and gas likely exists, companies seem more profitable to investors. The company looks more attractive. Stock prices rise. I've heard it suggested by a co-worker that if the company actually goes out and drills those leases and they turn up dry, the overall value of the company drops. Thus, there may be a disincentive to drill. So, while production is on a sure and steady decline, prices continue to rise, and the overall reserves are really not that much anyway, the companies continue to make revenue. Amass more leases, big payoff on Wall Street.
I dont know enough yet to say that it all actually work this way. I welcome any thoughts you all may have. I'm still learning and listening to those that know more than I, but I cant help but wonder about the logic of hoarding public land leases. Its been pointed out to me by another co-worker that under SEC rules, publicly-traded companies can disclose only proved reserves that have been demonstrated to be economically and legally producible under existing conditions and Em Dash has pointed me to this article that seems to confirm just that. Apparently, Shell got in trouble for drumming up thier reserve estimates in 2004:
Many petroleum engineers think the best measure of a company's holdings is the combination of proved and probable reserves. But the SEC allows the industry to put only proved reserves on the books. As a result, there is an "incentive for companies to book reserves too early and to overstate them," explains James G. Ross, a leader in an international effort to refine reporting standards. The amount of reserves is crucial to an oil company's stock market value and ability to borrow -- and the overbooking made Shell look stronger than it is in key performance measures. Wood Mackenzie analysts calculated that Shell's reserve replacement rate was only 57%, instead of a more respectable 105%, and that its exploration and development costs jumped from $4.27 per barrel to $7.90. The changes make Shell look weaker compared with rivals.
So maybe that plays less of a role than I had initially thought. Hmmmm....
Its also true that it is often small companies who bid on and begin the development of these leases and then the big, publically traded companies come in and buy up the leases later.
Still, What other reason would they have for attacking places like the Valle Vidal, Otero Mesa, Roan Plateau, etc. when they haven't even evaluated or developed the existing leases they hold?
Just ruminatin'.
Your thoughts?