On the Utter Stupidity of "Drill It or Lose It"
By Vladimir Posted in Domestic Drilling | drill | drill here | Energy | ocs — Comments (10) / Email this page » / Leave a comment »
I'd almost rather believe that House Natural Resources Committee Chairman Nick Rahall (D-WV) is lying. It's hard to believe that a man in his position, from a producing state no less, could be so hopelessly uninformed on such a critical issue.
It's major-league stupid, even by the standard of House Democrats. Awe-inspiring in its multi-faceted stupidity.
Democrats Say Oil Companies Should Lose Leases They Don't Use
"Simply put, we are telling Big Oil to use it, or lose it," Rahall said in the Democratic Party's weekly radio address. "They would either have to produce from these lands, show they are being diligent in their development, or give up the right to control even more federal energy resources."
The Major Oil Companies must find very large fields in order to keep their reserves growing. That's why they have in large measure abandoned domestic exploration in favor of international areas that are less heavily drilled. And that's precisely why it makes sense to open the currently-closed OCS areas to exploration.
Offshore leases are competitively bid. Some of them are worth more than others because of an indicated presence of a large geologic structure (an underground "hill" or trap that is a likely hydrocarbon accumulation).
There is a lot of coverage by modern seismic data; consequently, virtually all of the really big structures on the "Shelf" (less than 600 ft of water) were found 20 years ago or more. The Shelf has been called the Dead Sea by some; Chevron is the only major company that has not abandoned the Shelf for the much larger potential offered by deepwater exploration. It is an understatement to say that it is very mature. Most of the wells drilled these days, even with high prices, depend on the existence of nearby infrastructure.
Offshore leases aren't perpetual. They are for 5 year terms (10 years in deepwater). If an operator fails to establish production in the "primary term", the lease goes back to the Feds.
Only productive leases are held past the primary term. The Feds get 18.75% of production from new leases (historically 16.67%).
The minimum bid is $25/acre, a total of $125,000 for a typical offshore LA block. It's just like real estate; the average may be high (thanks to the occasional $50- to $100,000,000 block), but the median price of a block is probably $250,000.
Trust me, a $50,000,000 block gets drilled right away. And, for the record, my company owns a couple of undrilled leases that we would be more than happy to sell back to the Feds for no more money than we have spent to date.
Chairman Rahall may think he knows what he's talking about if he's making a blanket comparison with his home state of West Virginia. West Virginia is covered with wells, especially natural gas wells. You could poke a hole in just about any part of WV and make some kind of gas well. There are wells there that are 100 years old and still producing. A really good gas well in WV might make 250 million cubic feet in 20 years.
But the Gulf of Mexico is not in West Virginia. The geologic setting is completely different. You can't just poke a hole in the GOM and make a well; you have to have the proper geologic setting. But a really good gas well in the GOM might make 250 million cubic feet in 30 days or less. But you gotta have the structure.
It's just not that complicated, and it's hard for me to believe that Chairman Rahall is so badly informed.