Domenici Debunks Dems Claims of "Underdeveloped" Oil and Gas Leases

June 25, 2008
01:11 PM
Senator Domenici gave the following speech on the Senate floor today responding to claims by Democrats that existing oil and gas leases are not being fully developed.  The argument is being offered as a reason why America should not increase domestic production.
Mr. President, I have spoken extensively over the past several months about the growing threat of our dependence on foreign oil.  Two weeks ago, we were reminded of this threat by new trade deficit numbers showing a $ 4.4 billion deficit increase in just one month as a result of growing oil prices and growing oil imports.  Last week, the Wall Street Journal reported that six Arab economies took in $400 billion in oil and gas revenue last year alone.
            The Journal also reported that petroleum producing states are investing more of their oil wealth at home, triggering an investment and spending boom in the Middle East.  But as our reliance on foreign oil grows, 85 percent of our offshore acreage in the continental United States is still off limits for leasing—as are 62 percent of on-shore oil reserves.  Let no one tell you that we have plenty of American acreage leased for energy development, because compared to the rest of the world, we are falling behind, and it is making us poor.
Since the Senate last voted on my proposal to increase production then, it is estimated that America likely sent about $50 billion overseas to import oil.  What is particularly troubling to me is that after rejecting my proposal to open up new areas for production, the Majority has come up with excuse after excuse for not taking action. 
First, without any evidence to back them up, they claimed that price gouging was the reason for high prices.  At the same time they said that high prices were not caused by supply and demand issues, they told America that we must stop filling the Strategic Petroleum Reserve because the 70,000 barrels a day that went into it were raising the price of gas. Suspending the SPRO fill is something I supported---but I also said we need to do much more.  Unfortunately, advocates of the SPRO suspension in the Majority rejected my proposal to open up areas for production that would bring on-line more than 2 million barrels of oil per day. 
Now, the other side has apparently settled on an argument that first originated with the Wilderness Society.  They claim that oil companies are “sitting on” their leases, and that if those companies just developed in those areas we would not need to open new areas. If only that were true, Mr. President.
The other side is now saying oil companies must “use it or lose it” when it comes to their leases.  They’ve proposed adding a tax on companies to punish them for not producing fast enough.    This Wilderness Society argument demonstrates a fundamental lack of understanding of how we explore for oil and gas in this country.  And the fact that this argument originates with a group that has led 4 major lawsuits in the last 4 years to prevent development in these very same areas speaks to how disingenuous it really is. Part of the reason why it takes so long for companies to produce is because groups like the Wilderness Society keep throwing up roadblocks.
            Today I’m going to tackle this idea that companies are choosing to sit on their leases head on and I will debunk it once and for all. First let’s consider the logic.  Companies are paying lots of money for the right to explore on a lease, and are given a short period of time to produce oil.  With the cost of oil now at $135 per barrel oil, why on earth would a lessee intentionally sit on a lease and choose NOT to make money on it?   Why would a company pay money essentially to rent a tract of land and not use it? 
I have heard the claim that 41 million acres are leased on the outer continental shelf and of that acreage; 33 million acres are not “being produced.”  The use of this statistic shows a fundamental lack of understanding of the long, risky process that begins even before bidding on a lease and hopefully ends with production.  The other side is saying that unless oil is literally coming out of the ground on an acre, it doesn’t count—even if that acre is being explored, or is in the process of getting environmental permits, or in any other part of the process. Additionally, the use of this argument by groups who consistently go to Court to prevent development on existing lease areas speaks volumes about the intent here.
Congress currently restricts access to 574.2 million acres on the OCS.   In actuality, it is clear by any measurable assessment that the Majority in Congress is “sitting on” far more oil than the oil companies themselves.
Let’s focus on offshore federal leases for a moment. Simply examining the number of acres leased and the number of acres producing during a snapshot of time is deceptive. There are many different steps toward producing oil, and at any given moment, a lease may not be producing, but it is active and under development.  In the 5, 8, or 10 years that a company holds a lease, environmental assessments could be under way, lessees could be trying to secure permits, the leasing agency could be challenged in litigation, and a lessee could be reviewing seismic data.  In fact, any number of pre-production processes could be under way.
            I do not hear critics suggest that we speed this up or that we waive or shorten environmental requirements – and I am not suggesting that either.  But critics do want to impose new costs on U.S. producers under the guise of “speeding up leases.”  This tax and spend solution to a supply and demand problem makes no sense.  And, once again, the other side proposes a solution that threatens our competitiveness with nationalized oil companies who are after the same commodity around the world.  My friends on the other side of the aisle are fond of saying that we can’t drill our way out of the problem—and they are right.   But my message back to them is that we can’t TAX our way out of the problem either, and that’s exactly what they keep proposing to do.
Second, there are many up-front costs that leaseholders take on to acquire an oil and gas lease.  Bonus payments and pre-production rental payments often cost million of dollars and these capital investments are only being made for the ultimate development and production of oil to return a profit on investment.  Simply put, if oil is not produced from a lease, companies lose money on it.
Third, using these acreage numbers to claim that companies are “sitting on” $135 oil simply ignores the historical fact that simply because you lease lands does not necessarily mean that you are able technically or economically to produce on them – or even that there is oil under your lease.  Hence the term: “exploratory well.” 
Ironically, some of the very same people who are arguing that these leases are not being developed also opposed an inventory of new areas that would clearly speed up the development process when they are opened.
            To suggest that companies are not diligently developing their leases on the American deep sea is to simply ignore the facts.  Over the past decade, more than 100 new discoveries have been announced and since the passage of the Deepwater Royalty Relief Act thirteen years ago, offshore oil production has increased by 535 percent.  Over the past six months three major sales for OCS oil and gas leases have taken place and together raised more than $9 billion in federal revenues.  Under the Majority’s argument – that’s a lot of money companies are paying to sit on leases.
I have had the opportunity to review the data provided by one company that holds leases—BP.  BP has 124 leases that are actively producing. Those are the only ones that the Majority is counting when they give you their statistics of producing leases. But BP also has 459 leases that are in the exploration phase.  So 65% of BP’s leases are under exploration so that BP can produce from them in the future, yet the Majority would have you believe that BP is “sitting on” those leases instead of actively working toward producing on them.  This is about as deceptive an argument as I have ever heard.
We have severely limited our access to the American deepwater ,and the situation is only getting worse.  In 1982, nearly 160 million acres of land were being leased for exploration.  Today, it is less than 40 million.  Why?  Because we are running out of available land and we are restricting access to our own resources in favor of foreign oil.  According to the MMS, only 2.4% of the total offshore acreage is currently being leased and about 85% of our continental offshore is under moratorium.  As we debate about the use of 43 million acres available for development, we must recognize that Congress has placed 574.2 million acres under moratorium—and the Majority has supported continuing to do so. Only 6% of total lower-48 OCS is currently leased.  This does not demonstrate a lack of progress in the deepwater, it demonstrates a lack of progress on energy policy in Congress.
The American people have had enough with excuses and they are looking for leadership.  Two thirds of Americans are asking us to produce American oil, but the Majority in the Senate is blocking it. I urge my colleagues to look at the facts and take action.
I yield the floor.