Energy Politics

USA Today reports that a new study by the  U.S Department of the Interior shows that the government is not doing its best to expedite the domestic drilling.

Energy companies currently hold leases on 68 million acres of federal land but are not producing on them. President elect Barack Obama has supported a “use it of lose it” strategy to force E&Ps to produce on the lands they already hold leases instead of continuing to acquire new ones. Current undeveloped lease acres alone have the potential to double U.S. oil production.

In order to encourage E&Ps to start producing, the Interior Department recommends offering a lower royalty rate for faster production and shortening the term of the lease. Long-term leases apparently don’t provided incentive for companies to begin immediate development, which leads to large tracts of land being held by companies that are more concerned with other matters, such as acquiring further leases.

I for one hope this policy catches on. It’s one thing to face legitimate setbacks for drilling, but another thing to keep gobbling up leases and holding onto them, keeping them off the market from more ambitious E&Ps that would turn around and start developing them quickly.

Of course, the big bugaboo causing delays, especially on Rockies and Great Plains acres, are environmentalist concerns. Groups worried about effects on the environment or how oil production equipment will affect local wildlife can hold up production for months or years. To allow the “use it or lose it” policy to work fairly, the government must take a two-step program of requiring fast development and at the same time severely limiting the impact of frivolous lawsuits and legal challenges on public lands.

–Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

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