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June 01, 2004
Oil & Gas Leasing on Federal Public Lands
This is an interesting article on federal oil & gas leasing:
WASHINGTON (AP) — Nearly three-fourths of the 40 million acres of public land currently leased for oil and gas development in the continental United States isn't producing any oil or gas, federal records show, even as the Bush administration pushes to open more environmentally sensitive public lands for oil and gas development.An Associated Press computer analysis of Bureau of Land Management records found that 80 percent of federal lands leased for oil and gas production in Wyoming are producing no oil or gas. Neither are 83 percent of the leased acres in Montana, 77 percent in Utah, 71 percent in Colorado, 36 percent in New Mexico and 99 percent in Nevada.
How much exploration has occurred on the nearly 30 million acres of non-producing public land leases is difficult to say. BLM officials could provide no details on the number of exploratory wells drilled on those leases, despite repeated requests for that information over the past two months.
But with so much public land already available for exploration, environmental groups and local landowners are questioning why the Bush administration is pushing to lease still more federal land to the oil and gas industry, particularly in areas that the groups and some lawmakers want protected as federal wilderness areas.
For an alternative take, the oil industry often argues that leasing of public lands is not a big deal because it doesn't mean a public lands area will be drilled. And while this is true it is also true that once leased it is very difficult to provide a public lands area with greater protections.
I don't have a link for the article itself but it was accompanied with these two neat charts:
• The top 100 oil and gas lease holders on federal lands by acres leased
Now you'll notice that for the most part that oil & gas activity in the Allegheny National Forest is not reflected here. This is because 93% of the minerals under the Allegheny National Forest are privately held. So while much of this acreage is under lease - little of it is under federal lease. The numbers for Pennsylvania are:
Acres Leased: 7,669 acres
Acres Non-Producing: 2,804 acres
Percent Non-Producing: 36.4%
Posted by jkleissler at June 1, 2004 09:41 AM
Comments
Interesting statistics. However, I would think that much of the non-producing acreage is currently under evaluation. Oil and Gas companies, particularly on large tracts that have only been sparsely drilled or not drilled at all, will often run some combination of regional geochemical, aeromagnetic, gravity, radar, satelitte imaging, and seismic surveys prior to drilling an exploratory well. Most exploratory wells turn out to be dry, so additional surveys are run and more exploratory wells drilled with the new information until the acreage in question is either determined to be barren of hydrocarbons, contain hydrocarbons but not in commercial quantitites at current economics, or has commercial quantities of hydrocarbons and a way to get them to market. All of this evaluation and testing is very expensive and commercially risky. Years can and do go by in the evaluation phase. Most federal leases have a time limit in which the lease must become productive (called the primary term). If this does not happen within the primary term the non-producing leases return to the feds (3-10 years is the usual term I think). Leases can get renewed. In some cases there is a bid process, but I don't know if this applies to all tracts. In any case it shouldn't be surprising that most tracts stay in the non-producing category for years. Also companies often desire new leases so that as much of the available acreage with potential can be evaluated as early as possible. Again, this is necessary because most of the acreage will turn out to be non-productive for a variety of geologic reasons and because the evaluation process can take so long.
Posted by: Sea at June 1, 2004 11:56 AM
Sea,
Much of what you say is true. But it isn't always the case that a lease is inactive simply because a company is conducting reviews. Many of these acreages are simply inactive. I think that is true for the small Allegheny areas that are leased off (and I think others have had their leases expire). So much of the lease buying is speculation - and yet the lease will end up locking up areas from more serious consideration as Wilderness or Scenic Areas or for hiking trails because the possibility of exploration persists. Of course, the issue in the Allegheny National Forest (and portions of the Monongahela, Daniel Boone, Wayne, and Wasington/Jefferson National Forests) differs quite a bit due to private mineral ownership.
Posted by: Jim Kleissler at June 1, 2004 12:09 PM
Jim, you are right that some of the federal leases are being held but are probably not part of an active evaluation by the lesee. I don't know what the percentage is. My gut feeling is that it would be less than 50%. It doesn't do the lesee much good to hold onto acreage without evaluating it - because of the annual costs involved, but I'm sure this happens. The federal govt. usually gets an upfront bonus and annual rental (until production is established) on any of their leases. The bonus and rental are usually based on a negotiated $$$/acre. If the lease becomes productive, then the govt. receives its royalty on the production instead of the rental (in some leases it can still receive both). I guess the good news is that most if not all the leases do have a finite primary term and unevaluated (and non-productive)acreage returns to the government inventory after the primary term, when it will become available to be used or classified in other ways.
Posted by: Sea at June 2, 2004 12:44 PM
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