Monday, July 21, 2008

Use It Or Lose It Nonsense

Democrats like John Yarmuth, and his mentor Nancy Pelosi, have stonewalled development of other sources of energy -- like drilling in shale -- by responding that the oil companies are not drilling on all the land they've leased from the federal government. But their snappy slogan -- "use it or lose it -- defies common sense.

At a time when oil prices are at a record high, it would be economically irrational for the oil companies to not pump every possible gallon of crude. It would be contrary to the oil companies' own self interest to hoard crude in federal lands, especially after having spent hundreds of million of dollars for a lease. Why would they do such a thing -- laziness? evilness? Given the Democrats' attempts to demonize everyone who works for an oil company, they probably assume evilness.

The "Use It Or Lose It" rhetoric makes even less sense, given how the federal lease program works:

"I think it gives you a good idea why our leases are arranged in 5-, 8- and 10-year terms," said Randall Luthi, director of the Minerals Management Service, the arm of the Interior Department charged with overseeing offshore drilling in federal waters.

"If a company gets to the end of those terms and they're not making significant progress — and I do mean significant progress toward actually producing — those leases come back and we sell them again," he said.

Leases also can get tied up in court, often over environmental concerns. Or companies can determine that developing a particular tract doesn't make economic sense. Either way, they're listed on the federal government's books as "non-producing."

So if the Friends of the Caribou bring suit to stop an oil company from drilling, that land is listed as "non-producing." Democrats therefore maintain that the government should be able to take it back, regardless of whether the suit was frivolous or the oil company was close to making the land productive. But note: even if the government can convince another oil company to lease the seize land, as long as the litigation to stop the drilling is still pending, the land remains listed as "non-producing,"

It's all a big charade that lets Democrats rant against Big Oil without producing a drop of oil.

No surprise on the regulatory and litigation delay; we've seen the same problem in developing nuclear energy. It takes longer to get to the end of the permit process for a nuclear plant than to build one, and that's assuming no one from the Green Party sues.

Despite the risk of an empty well and a lawsuit, the oil companies have still been willing to lease the land and attempt to extract oil and gas from it. Congress, and the market, have built in a guarantee that those companies will use their best efforts to develop the land in the short increments for which they lease it: it's called the lease price.

Any company, even a big oil company, that invests "$100 million or more" on and oil lease and doesn't do all it takes to get a return on the profit will have more to worry about than John Yarmuth asking for their lease back. They'll be worried about about a shareholder derivative suit.

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