Oil & Gas Leases: Drill or Drop

Regarding the recent Interior Department report that two-thirds of Federal offshore oil and gas leases are idle, as are 45 percent of onshore leases (see article), the Administration is correct to call on the oil and gas industry to drill what they have before complaining about permitting as the major hindrance. More to the point, the US needs to change its leasing system for exploiting public lands. It should adopt a system for hydrocarbon leasing similar to those in the UK or Norway. There, a lessee not only pays for the lease, but includes with the bid a work program of evaluation (usually seismic) for 3-5 years. At the end of the term, if the lessee has not carried out the work specified or if the lessee deems the lease unproductive, the acreage automatically reverts back to the government. If the lessee finds the lease potentially productive, it enters into a further 3-5 year work program of exploratory wells. Again, the lease expires if the lessee fails to complete the exploration program or if the lessee deems the tract unproductive. If potentially productive, the lessee then enters into a long-term agreement for development and production from the lease. This would insure that companies cannot simply buy up and sit on leases, but must expeditiously exploit the public's lands (and pay the public royalties for the oil and gas produced) or return them to the public.