On June 10, 2008 there was a telephone "town hall" meeting with Representative Peter Welch regarding, in the main, the high price of oil and energy independence from foreign sources. As much as it twists my tongue to compliment a Democrat about anything, I must admit that this innovative step, which included many thousands of Vermonters, was a communication coup that will be remembered among many Vermont voters, even though some of the data relied upon by Representative Welch was specious and misleading.
In a continuing attempt to blame the oil companies for failing to pump enough of their product out of the ground, Representative Welch's resident experts cited that the oil companies are pumping oil from only a fraction of the property over which they hold subsurface gas and oil leases. While this statistic is true, it fails to explain the nature of these leases.
A subsurface gas and oil lease is not an instrument which is executed after the property is determined to contain petroleum deposits, it is an instrument of speculation that gives the lessee (oil companies) specific rights of access to the land to explore and pump out the oil IF the exploration shows that there are deposits of gas and oil present. At an average cost of a few dollars an acre, this is a cost effective way for the oil companies to ensure that, if there is anything there, they will have enumerated rights to enter the property and drill exploratory or production wells and, if oil is discovered, they will pay an additional, preagreed, royalty to the lessor. If there is nothing to pump out of the ground, it is only natural that the oil companies would not pump the nothing that is there, hence the fractional activity on leased land. They are not in the business of seeking out failure through trying to pump crude oil out of dry holes.
Interestingly enough, these "experts" offered up by Peter never stated that the oil companies were not properly using their leases, they merely implied it by failing to explain the nature of a subsurface gas and oil lease, thereby leaving the town hall participants with an eerie feeling of conspiracy among the oil companies to sit on their oil deposits until the price rises to a point where windfall profits can be made.
During the recent Senate Judiciary Committee hearings in which the oil company executives were called to task on the spiraling price of oil distillates, Shell's John Hofmeister explained:
"While all oil-importing nations buy oil at global prices, some, notably India and China, subsidize the cost of oil products to their nation's consumers, feeding the demand for more oil despite record prices. They do this to speed economic growth and to ensure a competitive advantage relative to other nations.
Meanwhile, in the United States, access to our own oil and gas resources has been limited for the last 30 years, prohibiting companies such as Shell from exploring and developing resources for the benefit of the American people.
Senator Sessions, I agree, it is not a free market.
According to the Department of the Interior, 62 percent of all on-shore federal lands are off limits to oil and gas developments, with restrictions applying to 92 percent of all federal lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an outer continental shelf moratorium on the Pacific Ocean, an outer continental shelf moratorium on the eastern Gulf of Mexico, congressional bans on on-shore oil and gas activities in specific areas of the Rockies and Alaska, and even a congressional ban on doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific and eastern Gulf of Mexico.
The Argonne National Laboratory did a report in 2004 that identified 40 specific federal policy areas that halt, limit, delay or restrict natural gas projects. I urge you to review it. It is a long list. If I may, I offer it today if you would like to include it in the record.
When many of these policies were implemented, oil was selling in the single digits, not the triple digits we see now. The cumulative effect of these policies has been to discourage U.S. investment and send U.S. companies outside the United States to produce new supplies.
As a result, U.S. production has declined so much that nearly 60 percent of daily consumption comes from foreign sources.
The problem of access can be solved in this country by the same government that has prohibited it. Congress could have chosen to lift some or all of the current restrictions on exportation and production of oil and gas. Congress could provide national policy to reverse the persistent decline of domestically secure natural resource development."
Later during the hearing, Senator Orrin Hatch and Hofmeister had the folowing dialog:
"HATCH: I want to get into that. In other words, we're talking about Utah, Colorado and Wyoming. It's fair to say that they're not considered part of America's $22 billion of proven reserves.
HOFMEISTER: Not at all.
HATCH: No, but experts agree that there's between 800 billion to almost 2 trillion barrels of oil that could be recoverable there, and that's good oil, isn't it?
HOFMEISTER: That's correct.
HATCH: It could be recovered at somewhere between $30 and $40 a barrel?
HOFMEISTER: I think those costs are probably a bit dated now, based upon what we've seen in the inflation...
HATCH: Well, somewhere in that area.
HOFMEISTER: I don't know what the exact cost would be, but, you know, if there is more supply, I think inflation in the oil industry would be cracked. And we are facing severe inflation because of the limited amount of supply against the demand.
HATCH: I guess what I'm saying, though, is that if we started to develop the oil shale in those three states we could do it within this framework of over $100 a barrel and make a profit.
HOFMEISTER: I believe we could.
HATCH: And we could help our country alleviate its oil pressures.
HOFMEISTER: Yes.
HATCH: But they're stopping us from doing that right here, as we sit here. We just had a hearing last week where Democrats had stopped the ability to do that, in at least Colorado.
HOFMEISTER: Well, as I said in my opening statement, I think the public policy constraints on the supply side in this country are a disservice to the American consumer."
Now that Congress knows, it will be interesting to see if they continue their "Blood For Oil" program in the Middle East, or whether they will knock down the roadblocks to domestic oil production that they have created. We have seen the enemy and it is Congress.
In a continuing attempt to blame the oil companies for failing to pump enough of their product out of the ground, Representative Welch's resident experts cited that the oil companies are pumping oil from only a fraction of the property over which they hold subsurface gas and oil leases. While this statistic is true, it fails to explain the nature of these leases.
A subsurface gas and oil lease is not an instrument which is executed after the property is determined to contain petroleum deposits, it is an instrument of speculation that gives the lessee (oil companies) specific rights of access to the land to explore and pump out the oil IF the exploration shows that there are deposits of gas and oil present. At an average cost of a few dollars an acre, this is a cost effective way for the oil companies to ensure that, if there is anything there, they will have enumerated rights to enter the property and drill exploratory or production wells and, if oil is discovered, they will pay an additional, preagreed, royalty to the lessor. If there is nothing to pump out of the ground, it is only natural that the oil companies would not pump the nothing that is there, hence the fractional activity on leased land. They are not in the business of seeking out failure through trying to pump crude oil out of dry holes.
Interestingly enough, these "experts" offered up by Peter never stated that the oil companies were not properly using their leases, they merely implied it by failing to explain the nature of a subsurface gas and oil lease, thereby leaving the town hall participants with an eerie feeling of conspiracy among the oil companies to sit on their oil deposits until the price rises to a point where windfall profits can be made.
During the recent Senate Judiciary Committee hearings in which the oil company executives were called to task on the spiraling price of oil distillates, Shell's John Hofmeister explained:
"While all oil-importing nations buy oil at global prices, some, notably India and China, subsidize the cost of oil products to their nation's consumers, feeding the demand for more oil despite record prices. They do this to speed economic growth and to ensure a competitive advantage relative to other nations.
Meanwhile, in the United States, access to our own oil and gas resources has been limited for the last 30 years, prohibiting companies such as Shell from exploring and developing resources for the benefit of the American people.
Senator Sessions, I agree, it is not a free market.
According to the Department of the Interior, 62 percent of all on-shore federal lands are off limits to oil and gas developments, with restrictions applying to 92 percent of all federal lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an outer continental shelf moratorium on the Pacific Ocean, an outer continental shelf moratorium on the eastern Gulf of Mexico, congressional bans on on-shore oil and gas activities in specific areas of the Rockies and Alaska, and even a congressional ban on doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific and eastern Gulf of Mexico.
The Argonne National Laboratory did a report in 2004 that identified 40 specific federal policy areas that halt, limit, delay or restrict natural gas projects. I urge you to review it. It is a long list. If I may, I offer it today if you would like to include it in the record.
When many of these policies were implemented, oil was selling in the single digits, not the triple digits we see now. The cumulative effect of these policies has been to discourage U.S. investment and send U.S. companies outside the United States to produce new supplies.
As a result, U.S. production has declined so much that nearly 60 percent of daily consumption comes from foreign sources.
The problem of access can be solved in this country by the same government that has prohibited it. Congress could have chosen to lift some or all of the current restrictions on exportation and production of oil and gas. Congress could provide national policy to reverse the persistent decline of domestically secure natural resource development."
Later during the hearing, Senator Orrin Hatch and Hofmeister had the folowing dialog:
"HATCH: I want to get into that. In other words, we're talking about Utah, Colorado and Wyoming. It's fair to say that they're not considered part of America's $22 billion of proven reserves.
HOFMEISTER: Not at all.
HATCH: No, but experts agree that there's between 800 billion to almost 2 trillion barrels of oil that could be recoverable there, and that's good oil, isn't it?
HOFMEISTER: That's correct.
HATCH: It could be recovered at somewhere between $30 and $40 a barrel?
HOFMEISTER: I think those costs are probably a bit dated now, based upon what we've seen in the inflation...
HATCH: Well, somewhere in that area.
HOFMEISTER: I don't know what the exact cost would be, but, you know, if there is more supply, I think inflation in the oil industry would be cracked. And we are facing severe inflation because of the limited amount of supply against the demand.
HATCH: I guess what I'm saying, though, is that if we started to develop the oil shale in those three states we could do it within this framework of over $100 a barrel and make a profit.
HOFMEISTER: I believe we could.
HATCH: And we could help our country alleviate its oil pressures.
HOFMEISTER: Yes.
HATCH: But they're stopping us from doing that right here, as we sit here. We just had a hearing last week where Democrats had stopped the ability to do that, in at least Colorado.
HOFMEISTER: Well, as I said in my opening statement, I think the public policy constraints on the supply side in this country are a disservice to the American consumer."
Now that Congress knows, it will be interesting to see if they continue their "Blood For Oil" program in the Middle East, or whether they will knock down the roadblocks to domestic oil production that they have created. We have seen the enemy and it is Congress.
