Another Hurdle on the Horizon

Mark Green
Posted June 3, 2009

At a time when the need for an economic boost has never been greater, Congress is considering a bill that threatens energy investments and jobs. If enacted as drafted, the bill--called The Federal Lands and Resources Energy Development Act of 2009--would consolidate federal energy and mineral leasing programs within one bureau at the Interior Department and establish regional councils intended to provide federal-state discussions about the development of regional energy plans.

The bill would also raise the fees associated with leasing onshore land for energy development, shorten the initial onshore lease terms from ten to five years, and assess a production incentive fee on existing leases that are not producing oil and gas in the later years of the lease agreement.

For those who haven't been involved in the energy business for the past several decades, this bill might appear fairly benign. In actuality, it represents one more bureaucratic nightmare that threatens U.S. energy security. Let's look at the facts.

The procedures required to develop energy in the United States already are unwieldy, to say the least. It takes years to lease the land, conduct seismic testing to determine whether oil or natural gas exists under the lease, get all of the required permits, and drill the first exploratory well. Then, if the well is judged to be commercially viable, it takes time to figure out the best way to produce the oil and/or natural gas, drill additional wells where they are needed, and finally start producing energy. Often energy projects are challenged in court, which leads to time-consuming delays.

Bear in mind that the cost of the lease and all of this exploration work is borne by the leaseholder. And he or she doesn't receive any return on this investment unless and until the field begins to produce energy.

Now add the additional requirement to get permission from a regional commission of some sort, and it's easy to see how many energy projects might be delayed even longer. In fact, they could be delayed beyond the term of the lease, especially if it's shortened from ten to five years. Clearly, this bill represents a new avenue for special interests to stop much-needed projects that could provide affordable energy supplies to the American public.

And what happens to energy projects that are delayed and nearing the end of the leasing period? Not only is the leaseholder expected to continue paying rent and other fees --unable to recoup costs--but also he or she could be fined for having a so-called "idle" lease. That's like going to a restaurant and paying for a steak dinner, and then being fined for sitting at the table before your meal is served.

API's President Jack Gerard described the potential impact of the bill, saying, "We need more energy. Provisions of this draft bill will not provide us with more energy. Instead, the draft bill will impose hurdles, drive up costs and stifle investments, which will lead to less energy."

The need for oil and natural gas is expected to grow in the United States, not shrink. Yet with this bill, Congress is considering new ways to prohibit America from producing more of its own traditional energy resources.

Take a look at the rhetoric vs. reality when it comes to federal leases, and explore the Interactive Leasing Timeline for developing America's offshore oil and natural gas resources.