Some truth about drilling and leases

We've covered the lies about drilling. Now for some raw truth.

Mr. Red Cavaney president and CEO of the American Petroleum Institute, the trade association that represents America's oil and natural gas industry says "A significant percentage of federal leases simply may not contain oil and natural gas, especially in commercial quantities."

So I looked up the success rate for 2007. In 2007, roughly 43 of open leases were producing commercial quantities of oil. Oil lease aren't bought or sold unless there is an expectation of finding oil. Finding oil isn't the same as finding a new car or an ex-boyfriend. There's a lot of geology and science involved. Even with that science, there's a 57% failure rate on federal lands.

So, is there a better than 50-50 chance in the ANWR? I can't say that I know. But, the oil industry and Republicans can't have it both ways. It can't be both a huge risk to drill for oil and a sure bet to drill for oil.

Republicans can say, as Nathan Deal has said, 'There's a vast depository of gas and oil' in the Alaskan Natural Wildlife Refuge. But then they can't say with any honesty, there's a huge risk in drilling for oil. Such a big risk that federal lease payments on unproductive land cripples oil discovery.

Like Red said, "Exploration is time consuming, very costly and involves a great deal of risk. Importantly, you see neither a drop of usable oil nor a cubic foot of natural gas while it is going on. But it is absolutely essential, and there is nothing "idle" about it."

Costly? To drill about 700 holes a year looking for oil in the entire USA? The actual drilling might be expensive.

But, the rent payments on federal land are a joke.

Let's be sure we cover this carefully. No one forces an oil company to explore or buy leases on private, public, or federal lands. No oil company shows up at your front door and says, "We'd like to explore for oil in your back yard by drilling a hole in the ground about 5,000 feet deep."

Pretty much some academic folks are studying geology for a variety of scientific reasons. Oil companies also have reasons for studying geology, to find the most likely places to drill for oil. The Federal government also has lots of reasons to study the geology of federal lands. So at least three groups are looking in the rocks to see what might be there.

How do you see through rock? Well, first you kidnap Lois Lane or Jimmy Olsen. When Superman shows up, you trade with him for some X-Ray vision. If you're not lucky enough or brave enough to kidnap reporters from the Daily Planet, you've got to wait on the United States Geological Survey (USGS) to "look" under the rocks.

So, step one of oil exploration is free. The government goes out and looks for mineral resources.

Under George Bush, any scientific discovery has to be reported first to USGS leadership and communications staff. Especially if the "findings or data ... [are] ... especially newsworthy, have an impact on government policy, or contradict previous public understanding to ensure that proper officials are notified and that communication strategies are developed."

So, if we find oil, call the oil men who hold office first.

So step two is free to insiders and campaign supporters with deep pockets. The rest of us have to wait until the "proper officials are notified and that communication strategies" are handled internally.

So once the insiders release the information, there's more to come. More studies and estimates of how much oil or other resource might be under federal land.

Some private companies are allowed to make additional studies and exploration prior to the offering of leases via auctions.

So no one is buying a pig in a poke. The oil companies have the best information possible before placing a bid.

Now, the leases are offered at auction. Bids are collected.

How does the government know the value of the bid? Is it too high or too low? Again, the government predetermines the expected amount of oil on the land being offered for lease. The oil companies also have a best guess based on public and private information gathered by the best scientists money can buy.

So, the bids are market based. High bid wins.

So that bid is in three parts. The up front price. The rent until developed or abandoned. Royalties on commercial production.

How much are the upfront prices? Whatever the market bears. Today's price of oil might support a huge upfront price but when the oil comes to market, the price might be higher or lower. That's the market risk. So neither the government or the bidder can determine exactly the upfront worth of a lease.

Then, the buyer continues to pay a rent on the land.

Now, this is a big political issue today. Those poor gamblers in the oil industry are being forced to pay rent! And, oh my God! They have to pay rent even if they are not drilling! Save us all from the federal government!

Oh get over it. The rent is $1.50 an acre for the first five years. $2.00 an acre after that.

I bet that fifty extra cents a month hurts ...

So, the federal government gets a token rent check until the lease expires. Prior to expiration, the lease can be extended. During exploration, leases can be extended. Hell, it looks like I could buy a damn lease, find oil, cap the well, and just keep extending the lease forever. There's no requirement to pump the oil out of the ground.

In Alaska, lease sales have occurred in Cook Inlet, the Gulf of Alaska, Norton Sound, and in the Bering, Beaufort and Chukchi Seas.

The only active leases in the Region are in Cook Inlet and the Beaufort Sea.

Yeah, I should have found something better to do with my time.

We're giving away our natural resources to the oil companies who have no time pressure to produce oil.