Policy Documents

Research & Commentary: “Use it or Lose it” Proposals

November 21, 2012

With gasoline prices reaching all-time highs, some activists and politicians are attacking oil and gas companies for not fully developing the federal leases for energy production they hold, and they’re using that as a reason to advocate a moratorium on issuing additional leases.

In an October 2012 report, Rep. Edward Markey (D-MA) said oil and gas companies were not using 72 percent of the total acres leased offshore and 56 percent of the land leased inland. Markey has said that before new areas off the East and West coasts are opened up for additional drilling, the oil and gas industry should get the most out of its current leases, which contain billions of barrels of oil, according to the U.S. Department of the Interior.

What Markey did not mention is that necessary surveying and infrastructure work can take several years, yet in the report these leases are counted as “inactive.” Markey and others advocate “use it or lose it,” a proposal to force oil and gas companies to relinquish such “inactive” leases. Such provisions are already in place, however: All federal leases issued to oil and gas companies include a term limit requiring the companies produce oil or natural gas by a certain time or return the lease.

Hoarding leases runs against market incentives. Ken Cohen, vice president for government and public affairs at ExxonMobil, notes on his company blog, “Oil companies have a financial responsibility to make investments that produce a return for shareholders. Spending millions of dollars to obtain a lease, and many millions more to study it—and then not producing it if it contains economic amounts of oil and gas supplies—would be a waste of shareholder money.”

Currently, approximately 85 percent of U.S. offshore areas are off-limits to energy production. According to the Wood Mackenzie energy consulting firm, leasing in currently off-limits federal areas beginning in 2012 would create more than half a million jobs by 2021. Policy proposals restricting this effort will do nothing but hinder the nation’s efforts toward energy security, economic growth, and increasing government revenue.

The following documents provide additional information about “Use It or Lose It” proposals.

 

Ten Principles of Energy Policy
http://heartland.org/policy-documents/ten-principles-energy-policy
Heartland Institute President Joseph Bast outlines the ten most important principles for policymakers confronting energy issues, providing guidance to help withstand ongoing changes in markets, technology, and policies adopted in other states, supported by a thorough bibliography. 

Use It or Lose It: Big Oil Not Using Drilling Leases in the Gulf of Mexico
http://democrats.naturalresources.house.gov/sites/democrats.naturalresources.house.gov/files/documents/2012-10-19_UseItOrLoseIt.pdf
House Natural Resources Committee Ranking Member Rep. Edward Markey (D-MA) released this working paper in response to oil companies calling on Congress to release more federal offshore areas for oil production. The paper states 72 percent of total acres leased offshore and 56 percent of total onshore leases are not being used. 

Let’s Lose The “Use It or Lose It” Rhetoric
http://www.exxonmobilperspectives.com/2011/03/17/lose-the-use-it-or-lose-it-rhetoric/
Ken Cohen, vice president of government and public affairs at ExxonMobil, walks though the long stages of leasing, permitting, exploration, and development in oil production and explains that forcing companies to produce resources on all tracts they have leased is easier said than done. 

“Use It or Lose It” Is a Solution in Search of a Problem
http://www.noia.org/website/article.asp?id=42911
Randall Luthi, president of the National Ocean Industries Association, states it is inaccurate to identify every oil lease where no active drilling is taking place as an “inactive lease,” because drilling requires several years of preparatory work. 

Rep. Markey’s Many Myths: Report Much Ado About Nothing
http://www.instituteforenergyresearch.org/2012/10/26/rep-markeys-many-myths-democrats-report-much-ado-about-nothing/
The Institute for Energy Research fact-checks Rep. Markey’s report, busting several myths about so-called “idle” leases. It notes oil companies require a large quantity of leases because a very small percentage will ultimately yield usable amounts of oil or natural gas. 

Statement by Erik Milito Regarding “Use It or Lose It”
http://www.api.org/news-and-media/news/newsitems/2011/mar-2011/~/media/Files/News/2011/20110324_Milito_opening_statement_useitorloseit.ashx
Erik Milito, group director of upstream and industry operations at the American Petroleum Institute, notes oil and gas companies have every incentive to produce as much energy as possible as a result of competitive markets and a financial obligation to their shareholders. 

Energy Policy at a Crossroads: An Assessment of the Impacts of Increased Access versus Higher Taxes on U.S. Oil and Natural Gas Production, Government Revenue, and Employment
http://heartland.org/policy-documents/energy-policy-crossroads-assessment-impacts-increased-access-versus-higher-taxes-us
Energy consulting firm Wood Mackenzie assumes a development scenario in which leasing for all currently off-limits federal lands would open up starting in 2012. The study finds the number of direct and indirect jobs that would be created in this scenario would surpass 500,000 by 2021.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Environment & Climate News Web site at http://news.heartland.org/energy-and-environment, The Heartland Institute’s Web site at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Policy Analyst Taylor Smith at tsmith@heartland.org or 312/377-4000.