Saturday, June 21, 2008

The idle oil field fallacy

When the Democrats tell the public that oil companies are sitting on oil leases that they have willfully not developed in order to push the price of gas higher, they fail to tell the full story. From the WSJ

A company bids for and buys a lease because it believes there is a possibility that it may yield enough oil or natural gas to make the cost of the lease, and the costs of exploration and production, commercially viable. The U.S. government received $3.7 billion from company bids in a single lease sale in March 2008.

However, until the actual exploration is complete, a company does not know whether the lease will be productive. If, through exploration, it finds there is no oil or natural gas underneath a lease – or that there is not enough to justify the tremendous investment required to bring it to the surface – the company cuts its losses by moving on to more promising leases. Yet it continues to pay rent on the lease, atop a leasing bonus fee.

2 comments:

Toni said...

I find it fascinating (and not in a good way) that this happens.

The Bobo said...

Wil - thanks for finding a source. Often times I know what I know from all other sources and can't pinpoint them - but I will state the facts anyway.

It still amazes me the way the Dems continue to lie to the people and use the big oil companies as the scapegoats - when, in fact, it is the government who actually profits from big oil not being allowed to explore and drill.