Oil Leasing 101

Working as a land clerk for a small Denver oil exploration company in 1981, I did a lot of work that never resulted in a drop of oil. We worked to get a high percentage of the leases covering a certain field, but sometimes another company, such as Anadarko, held too much of the area or we had to wait on cantankerous rancher holdouts. It was a long, many times unsuccessful, process.

Oil exploration has come a long way since the ‘80s but many things still hold true. It’s still a risky business—the $50 yearly check I received in the ‘80s from a small percent interest I held in an oil well turned into a $50 liability in the ‘90s. (I foolishly got rid of it.)

The number of permits required has increased.  Twenty-five to thirty permits are needed for off-shore leasing, and the permitting required for onshore leasing has become dizzying as well.

But the energy companies are filling our government’s coffers. In 2006, the top 27 U.S. energy producing companies paid 21% of the total corporate income taxes ($81.5 billion) collected by the federal government. These 27 companies were responsible for 44% of the total U.S. crude oil and natural gas production, and 81% of domestic refining capacity.(API) In fiscal year 2006, $10.48 billion was also collected in the form of bonus bids, rents and royalties from oil and gas companies operating on Federal lands. (Interior Budget in Brief 2009)

It’s also important to know that ANWR’s size is comparable to South Carolina’s and the size of the area that would be drilled is comparable to Dulles airport’s. Jonah Goldberg asks, “Has South Carolina been ruined because it has an airport?” The Congressional Research Service estimates that ANWR production would deliver $191.1 billion in corporate income tax and royalty payments to the federal treasury at today’s prices. (CRS Report)

Today, certain congressmen think they are landmen and have decided that oil companies don’t know how to make money and should be making money off their currently-held leases, rather than Congress releasing new areas. They have no desire to open up American soil for American oil with American jobs. This is clearly seen in the fact that the place where such a bill would be considered—the House Natural Resources Subcommittee on Energy & Mineral Resources —has no hearings scheduled for July on this important issue.