Saturday, October 25th, 2014

The Obameter

Require drilling on current oil and gas leases

"A "Use it or Lose It" Approach to Existing Leases. Oil companies have access to 68 million acres of land, over 40 million offshore, which they are not drilling on. Drilling in open areas could significantly increase domestic oil and gas production. Barack Obama and Joe Biden will require oil companies to diligently develop these leases or turn them over so that another company can develop them."

Updates

The longer the lease, the higher the price

"Use it or lose it."
 
It was a phrase we heard a lot of in the summer of 2008, when gas prices were at record highs and we were in the midst of a heated presidential election. In response to Republican criticism that high gas prices were the product of Democratic opposition to domestic drilling, Democrats responded by introducing legislation that would require oil companies to develop their existing leases before they would be issued new drilling licenses.
 
Obama took cues from his fellow Democratic lawmakers on Capitol Hill and incorporated the "use it or lose it" approach into his campaign platform.
 
Obama first attempted to deal with the issue in his budget, where he proposed a fee on oil companies that were not using their oil and gas leases in the Gulf of Mexico. But the idea did not go over well with moderate House Democrats who feared the new fees would increase the cost of energy.
 
Then, in June 2009, House Natural Resources Committee chairman Nick Rahall floated a draft bill that would mirror the fees proposed by Obama. But the bill was never introduced, and after that, the issue seemed to go quietly into the night.
 
But then we found a Federal Register notice posted by the Minerals Management Service on Jan. 14, 2009. The office is part of the Department of Interior and oversees drilling leases, and, according to the announcement, it has decided to increase rental fees on leases in the Outer Continental Shelf. In short, a drilling company will have to pay an additional $4,320 to $37,440 in annual rental fees to keep undrilled areas longer than five years.
 
Athan Manuel, director of the lands protection program for the Sierra Club, said the increased fees are "a pretty big deal and should prompt companies to use it or pay for it."
 
That said, Obama promised oil companies would need to use leases or lose leases, not hold on to them so long as they were willing to pay for them. Furthermore, Obama's promise indicated that oil companies would have to drill on on- and offshore land, but the new rules only seem to apply to offshore tracts. So, for now we're going to rate this promise a Compromise. But we'll be watching to see whether the new rules spur oil companies to hurry up and drill.

Sources:

Congressional Quarterly, Democrats Try ‘Use It or Lose It" Oil Argument, by Coral Davenport, June 16, 2008
 
Congressional Quarterly, Obama Would Add Oil and Gas Industry Taxes in Interior Budget Plan, By Avery Palmer, Feb. 26, 2009
 
Congressional Quarterly, Moderate House Democrats Balk at Higher Oil and Gas Industry Taxes, by Avery Palmer, March 24, 2009
 
The Federal Register, Final Notice of Sale: Outer Continental Shelf (OCS) Central Planning Area (CPA) Gulf of Mexico (GOM) Oil and Gas Lease Sale 208, accessed Jan. 11, 2010.