The Hidden Dangers of the 'Use It Or Lose It Bill'

I initially thought that HR. 6251, The so-called 'Use It or Lose It Bill' being pushed by Pelosi, Reid, and written by Representative Rahall was nothing more than political propaganda aimed at creating the false perception that congressional leadership was intent on doing something about our energy crisis. As I wrote about in the '68 Million Acre Joke' the entire basis of this legislation was built around a report issued by Congressman Rahall that claimed that if Oil companies were to drill on the current leases they hold, they would quadruple current offshore production and double our entire domestic oil production. Unfortunately, Congressman Rahall and his staff literally 'made-up' the figures within the report without consulting any statistical data, analysis, or expertise that was readily available from the Department of Energy, Coast Guard, USGS, and other related government agencies. The information was extrapolated using the crudest methods and has been condemned by just about every related government agency and independent energy research group and professional geological associations.

The bill initially failed within the house, but reports surfaced yesterday that Pelosi and Reid had been holding private meetings with moderate congressional Democrats who have refused to support the bill, in an attempt to revive the legislation. Of course, with my inquisitive mind, I decided to actually look into the bill and determine why Pelosi and Reid are pushing so hard. What I discovered, is that hidden deep inside the bill are some disturbing provisions designed to raise government revenue, limit competition within the companies currently exploring and drilling, and undoubtedly lead to less offshore oil production.

In June, the head of the American Association of Petroleum Geologists, an independent professional association that typically avoids taking positions on public policy, wrote a condemning letter to Speaker Pelosi, and Congressmen Hoyer and Boehner. In the letter the independent associations president wrote, "As Congress considers measures to deal with high crude oil prices, I urge caution. Policies that increase exploration costs, decrease the available time to properly evaluate leases, and restrict access to federal lands and the Outer Continental Shelf do not provide the American people with short-term relief from high prices and undermine the goal of increasing stable long-term supplies." This letter should be of particular significance, not only because of the rarity of the organization condemning a piece of legislation, but more importantly because this is an association made up of the very scientists responsible for mapping, locating, and exploring potential offshore deposits. Once again, this congressional leadership, along with a number of both Democrats and Republicans are attempting to pass legislation in driven by false statistical data and directly opposed by the expertise of much of the geological community.

One provision of the legislation actually shortens the allotted lease period from the current 10 years to a 5 year lease. At the end of the five year period, the lease will "not be renewed for an additional period, unless the Secretary determines that as of the date of the expiration of the preceding period--

‘(i) production of oil or gas is occurring under the lease; or

‘(ii) the lessee is making good-faith progress towards such production and additional time is required to initiate such production; and

‘(C) be subject to a rental for each such additional period that is not less than double the rental rate that applied for the last year of the initial period;’.

This provision sets forth a government determined timetable for the exploration of "production" of oil in each lease block within a 5 year period. By this standard alone, oil companies would be forced to vastly expand their exploration abilities and "rush" to production, an event that would undoubtedly lead to increased costs and potential accidents. Moreover, considering that congressional leadership has condemned offshore drilling by citing that we would not receive a drop of oil for 7 to 10 years, why would they shorten the exploration and production time to a 5 year period. By their own statements that have established a timetable that they do not believe the oil companies can meet. However, the most damaging part of this legislation rests in the increased lease rates that congress is wanting to place upon the oil companies; lease rates that would 'no less than double' if the companies were not producing within 5 years. Now tell me, how would you expect private companies to react to these provisions.

The bill also implements a "lose it" provision in which the government "shall not issue any new lease that authorizes the exploration for or production of oil or natural gas...unless the person--

(1) certifies for each existing lease under such Acts for the production of oil or gas with respect to which the person is a lessee, that the person has diligently developed the Federal lands that are subject to the lease in order to produce oil or natural gas or is producing oil or natural gas from such lands; or
(2) has relinquished all Federal oil and gas leases under which oil and gas is not being diligently developed."

The hidden danger of the 'lose it' provision simply rests in the fact that with increased rental rates and increased expenses for exploration and development, smaller drilling companies will no longer be able to compete with the largest oil companies. The net result would be that the rampant monopolization that currently exists withing the wholesale US oil market will spill over into the US production market. As smaller companies fail to carry out government established timetables on current leases, they will be forced to either forgo the lease and write-off millions of dollars in losses, or give up their rights to future land leases. The result would mean less drilling competition, less exploration, and subsequently less production.

This bill is simple; simply horrible that is. It was designed to raise government revenue by more than doubling lease rates over the next five years and subsequently set standards that are largely considered unrealistic and unachievable. The bill will reduce competition and directly contradicts any sensible and prudent measure that congress should be taking during a time of record oil prices and potential economic stagflation. Congressional leadership is playing politics with our energy needs and now trying to push a harmful bill down our throats while using manipulated and unsubstantiated data to try to sell it too us.

Within three months temperatures will cool down across this nation, and Americans across the upper US will flip the switch on their heaters. When this occurs, the American consumer will not only have to suffer unbearable prices at the pump and an inflation rate that alone topped 1% last month, but they will face the reality of dramatically increased home heating expenses. The current congressional leadership has utterly failed to carry out their promises in 2006 and has made it clear that they have no intention of passing genuine and effective legislation any time soon. It is time that we get off our butts and send a message to congress to take action or resign.

Start today, by sending a message to congressional leaders to pass the 'Gas Price Reduction Act of 2008', send an email to congressional leadership through our energy email initiative today.

J Brown
July 17th, 2008
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