66% offshore and 45% onshore oil leases inactive

http://news.yahoo.com/s/ap/20110329/...obama_energy_4

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WASHINGTON – An Interior Department report to be released Tuesday says more than two-thirds of offshore oil and gas leases in the Gulf of Mexico are sitting idle.

According to the report, obtained by The Associated Press, those inactive swaths of the Gulf could potentially hold more than 11 billion barrels of oil and 50 trillion cubic feet of natural gas. The report also shows that 45 percent of all onshore oil and gas leases are inactive.

President Barack Obama ordered the Interior Department review earlier this month amid pressure to curb rising gas prices. The White House says Obama will address his plans for the country's energy security during a speech in Washington Wednesday.

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Uhh... so the landowner (US gov) got lease money for something that the Oil Co doesn't see fit to drill at the moment (or is in preparation to drill)

I really don't know why they are using the term "active". If you have paid for a lease, then it is "active". You are given a set time frame to plan/drill (10 years offshore 3 years onshore?) then the lease reverts back if there is no production.

Whats the problem? You can't drill everything at once. For one there are not enough rigs, secondly people take speculative leases that they will eventually drill if their idea pans out.

This is mumbo jumbo political speak to try to whip people up into a frenzy when really it is just standard business practice and makes all kinds of sense.

If they are reffering to leases that HAVEN'T been taken... Then how the hell is that the fault of the Oil Co's? Current interpretation/theory/economics don't make it profitable to lease in their opinion. Trust me... if any one of them thought that they could make significant amounts of money from an unleased parcel, they would lease it.

it is trying to say that oil cos should quit asking for more land to drill since they aren't actually drilling on the claims that they already have.

It does seem disingenuous for oil companies to complain about the permitting backlog when they leave 2/3 of their offshore leases idle.

They can't get permits on THESE!! Lol

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Originally Posted by Sec24Row7

They can't get permits on THESE!! Lol

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They don't get it...

Get what?

the oilcos are going after onshore natural gas, because it's cheaper to explore/extract than offshore, and, like with offshore or any resource extraction, the external costs (destroyed air, water, land) are born by citizens.

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Originally Posted by Winehole23

Get what?

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The difference between a lease and a permit to drill on the lease after they determine there is a reasonable probability of producing oil there.

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Originally Posted by Winehole23

Get what?

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I believe the point CC & Sec are trying to make is that just because you have the lease doesn't mean you have the permit to drill on it.

All of the leases are inactive due to lack of permitting?

Extremely unlikely.

Although if you're a company who has 10 leases and only has the resources to drill one at a time, not being able to get that one permit could be interpreted as being responsible for holding up drilling on all 10 of your leases.

Don't get me wrong, Interior is dragging its feet for sure. The permitting gripe is real, but so are the crocodile tears imo.

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Originally Posted by Winehole23

All of the leases are inactive due to lack of permitting?

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Sec 24 knows more about the business than I do but a lot of onshore leases are speculative...the more "sure" an area, the higher the price per acre for the lease...there are a lot of very "iffy" areas leased onshore for a low price "just in case"...seismic crews are constantly working and the technology gets better and better and these leases are maintained just in case smaller pockets of economically feasible oil/gas are identified.

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Originally Posted by Winehole23

Don't get me wrong, Interior is dragging its feet for sure. The permitting gripe is real, but so are the crocodile tears imo.

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Agree with you on both counts.

Correct me if I'm wrong, but aren't these leases also considered assets and thereby increase the value of the companies which hold them?

Actually I'd think leases would be liabilities. Leases cost money to hold and if you're not drilling on them they're not producing any revenue.

Maddow destroyed the MMS and offshore guys the other night.

The "fixed up" emergency spill plan which was supposed to be in reaction to BP spill and basis for new deep-well permitting was written in .... 2009. :)

The fully captured/corrupted non-performing whores-and-coke MMS and the drilling industry don't give a fuck about spills or employee safety, only about profits.

And what about that $21B fine for BP based on the $35 fine per barrel spilled?

Here's one that was approved pretty recently.
http://www.telegraph.co.uk/finance/n...echnology.html
New technology, huh? Floating storage near an area that just had a large spill. Mmmkay


Oh, and if Obama utters ethanol, I'm going to scream.

Well shit. First let's start with the report itself:

http://www.doi.gov/news/pressrelease...&pageid=239255

It does give some data on the onshore lease process, including the backlogs of approved development plans, although such data is conspicuously missing from the offshore segment.

Best commentary I have read is here:

http://thehayride.com/2011/03/interi...-oil-industry/

Summary:
Report is simply ammunition/political fodder for the administration to give itself cover from charges that it isn't furthering domestic oil production.

It is a "political stunt", to borrow the words of the oil industry.

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After all, industry representatives say, not every lease is home to valuable oil and gas — and it can take years to find out. In the meantime, lease-holding companies pay the federal government annual rental fees, on top of the money they already spent bidding on the drilling rights.

A long path of geological surveying, exploratory drilling, construction and permitting separates the initial lease sales from energy production, if oil and gas is even located on the site.

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To be fair though, if an industry making HUNDREDS OF BILLIONS OF DOLLARS IN PROFIT *really* wanted to further the process along, they have more than adequate resources to do so, regulatory transigence or no.

Quite frankly it seems as both the administration and the industry are attempting to spin this in a way that suits them.

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Originally Posted by MannyIsGod

Correct me if I'm wrong, but aren't these leases also considered assets and thereby increase the value of the companies which hold them?

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They are considered assets, but you give up other assets, i.e. cash to get them and hold them.

My understanding:

They ultimately only really increase the value of the company if there is actually oil that can be economically recovered in them. They are more like "options" than anything else.

It is akin to buying raffle tickets, in that regard. The value of any given ticket is hard to figure until the results are known. You could have a 40" plasma screen ticket or an Aunt Mertha's fruitcake ticket.

Long answer short:
They increase the value of the company, but not by much in the short run.

Duck season/wabbit season

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Originally Posted by Winehole23

Don't get me wrong, Interior is dragging its feet for sure. The permitting gripe is real, but so are the crocodile tears imo.

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:lol

Agreed.

Seems you beat me to it, and in much less verbiage, as usual.

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Originally Posted by Viva Las Espuelas

Duck season/wabbit season

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http://www.gifbin.com/bin/1235471162...bbitseason.gif

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Originally Posted by Winehole23

It does seem disingenuous for oil companies to complain about the permitting backlog when they leave 2/3 of their offshore leases idle.

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I don't recall all the details I heard, but a large part was that expected payoff of many of these leases is low or negative, unless the price of oil rises. The other part is the new offshore drilling moratoriums in place by the current administration.

More non-news generated only for political purposes.

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Originally Posted by RandomGuy

They are considered assets, but you give up other assets, i.e. cash to get them and hold them.

My understanding:

They ultimately only really increase the value of the company if there is actually oil that can be economically recovered in them. They are more like "options" than anything else.

It is akin to buying raffle tickets, in that regard. The value of any given ticket is hard to figure until the results are known. You could have a 40" plasma screen ticket or an Aunt Mertha's fruitcake ticket.

Long answer short:
They increase the value of the company, but not by much in the short run.

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Actually the value of that raffle ticket is the same whether you win or you don't win. For instance, if there are 1000 tickets and the value of the prize is 4000 dollars then the value of your ticket is 4 dollars.

I would not be surprised if these leases are valued in a similar fashion in order to increase the companies books. Its not as if there is ever any creative accounting that goes on in corporate america! HA.

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Originally Posted by MannyIsGod

Actually the value of that raffle ticket is the same whether you win or you don't win. For instance, if there are 1000 tickets and the value of the prize is 4000 dollars then the value of your ticket is 4 dollars.

I would not be surprised if these leases are valued in a similar fashion in order to increase the companies books. Its not as if there is ever any creative accounting that goes on in corporate america! HA.

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How much is that raffle ticket worth if you don't have any idea what the prize is? But you do know that it is possible that the prize is $0.

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Originally Posted by coyotes_geek

How much is that raffle ticket worth if you don't have any idea what the prize is? But you do know that it is possible that the prize is $0.

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Yeah that was a pretty terrible analogy. Just try to convince the guy with the winning ticket it's only worth $4.

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Originally Posted by coyotes_geek

How much is that raffle ticket worth if you don't have any idea what the prize is? But you do know that it is possible that the prize is $0.

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The possibility of the prize is always zero for anything of that nature but it still gets an assigned value based on the probability of making money and how much money is going to be made.

That raffle ticket is most likely going to net you nothing, but thats besides the point. If the value of the ticket is $4 and the cost of the ticket is 2 dollars, you would be a fool not to purchase as many of those tickets as you can. Do you see why?

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Originally Posted by MannyIsGod

The possibility of the prize is always zero for anything of that nature but it still gets an assigned value based on the probability of making money and how much money is going to be made.

That raffle ticket is most likely going to net you nothing, but thats besides the point. If the value of the ticket is $4 and the cost of the ticket is 2 dollars, you would be a fool not to purchase as many of those tickets as you can. Do you see why?

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Yes, because the expected value of the future cash flows from the ticket is far greater (double) than the cost of entry.

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Originally Posted by CosmicCowboy

Yeah that was a pretty terrible analogy. Just try to convince the guy with the winning ticket it's only worth $4.

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Its actually a perfect analogy in any risk/reward scenario. That is the exact line of reasoning I used when I played poker for a living.

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Originally Posted by Drachen

Yes, because the expected value of the future cash flows from the ticket is far greater (double) than the cost of entry.

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Exactly. Expected Value is such a beautiful thing. In a cut and dry scenario like the raffle tickets then its incredibly easy to draw out the exact value of each item but obviously with something far more nebulous like oil leases its much harder to put an exactly value on each lease due to the uncertainties in both the market price of any possible oil and the variables in costs assoociated with extracting it but the core principle still holds.

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Originally Posted by MannyIsGod

The possibility of the prize is always zero for anything of that nature but it still gets an assigned value based on the probability of making money and how much money is going to be made.

That raffle ticket is most likely going to net you nothing, but thats besides the point. If the value of the ticket is $4 and the cost of the ticket is 2 dollars, you would be a fool not to purchase as many of those tickets as you can. Do you see why?

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That's all well and good when you know there's a prize, you know how much that prize is worth and you know what your odds of winning it are.

If you don't know whether or not there is a prize, let alone how much it might be worth, and you don't know how many tickets got sold, can you still tell me what the value of your ticket is?

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Originally Posted by coyotes_geek

That's all well and good when you know there's a prize, you know how much that prize is worth and you know what your odds of winning it are.

If you don't know whether or not there is a prize, let alone how much it might be worth, and you don't know how many tickets got sold, can you still tell me what the value of your ticket is?

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The oil companies aren't just buying up leases anywhere, CG. They're obviously doing cost benefit analysis that led them to believe the lease is a worthwhile purchase otherwise why are they buying them?

Obviously lacking information makes it much harder to discern what the expected value of any decision is but thats a strawman in this situation. As I pointed up in a previous point you do not know the exact expected value of many real world situations because of so many variables and incomplete information but I can promise you that the oil companies are purchasing these leases with the understanding they will make them money in the long run.

In other words, each one of those leases has an expected value to the corporations that purchase them and in order for that purchase to be a good one that expected value MUST be higher than the purchase price.

Quote:

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Originally Posted by coyotes_geek

How much is that raffle ticket worth if you don't have any idea what the prize is? But you do know that it is possible that the prize is $0.

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We have some idea how much oil is probably out there, and what kinds of oil it will be.

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Originally Posted by MannyIsGod

The oil companies aren't just buying up leases anywhere, CG. They're obviously doing cost benefit analysis that led them to believe the lease is a worthwhile purchase otherwise why are they buying them?

Obviously lacking information makes it much harder to discern what the expected value of any decision is but thats a strawman in this situation. As I pointed up in a previous point you do not know the exact expected value of many real world situations because of so many variables and incomplete information but I can promise you that the oil companies are purchasing these leases with the understanding they will make them money in the long run.

In other words, each one of those leases has an expected value to the corporations that purchase them and in order for that purchase to be a good one that expected value MUST be higher than the purchase price.

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In the aggregate, exactly.

With quite literally trillions of dollars in revenue at stake, there is plenty of money there to hire experts to get a good sense of how much any particular chunk is worth.

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Originally Posted by MannyIsGod

The oil companies aren't just buying up leases anywhere, CG. They're obviously doing cost benefit analysis that led them to believe the lease is a worthwhile purchase otherwise why are they buying them?

Obviously lacking information makes it much harder to discern what the expected value of any decision is but thats a strawman in this situation. As I pointed up in a previous point you do not know the exact expected value of many real world situations because of so many variables and incomplete information but I can promise you that the oil companies are purchasing these leases with the understanding they will make them money in the long run.

In other words, each one of those leases has an expected value to the corporations that purchase them and in order for that purchase to be a good one that expected value MUST be higher than the purchase price.

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There's a difference between the financial justification an oil company goes through to determine whether or not to buy a lease and what they can claim on their financial statements. Unless the goal posts moved, I thought we were talking about whether or not oil companies could claim leases as assets. The answer to that question is no. An oil company can not take a collection of leases, go through a probabilities scenario and then claim whatever quantity of oil they come up with as an asset. They're limited to claiming "proven reserves". What qualifies as "proven reserves" and what doesn't is a whole other conversation, but it involves the act of having physically drilled at least one well and actually having found oil.

An unexplored lease is a quantifiable liability and an unquantifiable asset. Accounting-wise, that equates to just being a liability.

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Originally Posted by coyotes_geek

There's a difference between the financial justification an oil company goes through to determine whether or not to buy a lease and what they can claim on their financial statements. Unless the goal posts moved, I thought we were talking about whether or not oil companies could claim leases as assets. The answer to that question is no. An oil company can not take a collection of leases, go through a probabilities scenario and then claim whatever quantity of oil they come up with as an asset. They're limited to claiming "proven reserves". What qualifies as "proven reserves" and what doesn't is a whole other conversation, but it involves the act of having physically drilled at least one well and actually having found oil.

An unexplored lease is a quantifiable liability and an unquantifiable asset. Accounting-wise, that equates to just being a liability.

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Are you sure about that?

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Mr. Joe Wallen, CEO and Director of Quest Oil commented, "The potential acquisition of this oil and gas lease, which is in its final stage, will add substantial reserves to the Company's assets of approximately 1.6 million barrels of recoverable oil. We have initiated imaging by Hydrocarbon Imaging, Inc. to be conducted on acreage adjacent to the current acreage we are finalizing."

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http://money.msn.com/business-news/a...18&id=13186706

Thats just a quick google search that I did.

In fact this PDF seems to completely contradict what you said, CG.

http://www.hfbe.com/wp-content/uploa...ion-Review.pdf

Since I know little about the accounting of majors, I'm not by any means an expert. However, it would seem to me that PUDs (proven drillsites) are reflected in share price. Prospects are valued much lower. Leases become more valuable the more interest there is in an area. (there may or may not be competition for individual government leases depending on different interpretations of different companies)

Shale plays (onshore) are popular right now because they cover much larger areas than conventional reservoirs so a company can just add a PUD per every so many acres to their sheet.

Conventional reservoirs (like are being drilled in the gulf) usually take up a very tiny percentage o a lease block. Companies then have to spend vast amounts of money to drill an exploration well (that is usually abandoned) which could cost north of 100 million JUST TO SEE if their idea is correct and there is oil there... If it's not... Imagine opening Alamo quarry... And no one shows up... Ever...

As a royalty owner of federal lands due to my citizenship... I find great fault with the president not wanting to open more acreage to exploration... What's the deal with... "drill what you have before we 'give' you more"... Oil co's PAID for what they leased... They want to PAY you more for MORE leases!!! In addition to that the US gov gets 25% of all hydrocarbons produced AND they get to tax the pofit of the oil companies on the oil that is produced!!!

The government has expressed an interest in keeping oil prices high to make alternative fuels competative.

Onshore/offshore drilling may not make a huge difference... But there is a divergence in the price if Brent crude and WTI right now... With Brent being about 8% higher... The more oil we can deliver here... With less associated transport costs... The lower our gas prices will be.

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Originally Posted by MannyIsGod

Are you sure about that?



http://money.msn.com/business-news/a...18&id=13186706

Thats just a quick google search that I did.

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Originally Posted by MannyIsGod

In fact this PDF seems to completely contradict what you said, CG.

http://www.hfbe.com/wp-content/uploa...ion-Review.pdf

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Proved reserves are the only type the U.S. Securities and Exchange Commission allows oil companies to report to investors.

http://en.wikipedia.org/wiki/Oil_reserves

You can also dig up an oil co's 10-k. They have to document all their proved reserves.

So if I'm an investor I can't get any information on probable reserves from an oilco? That seems really bizzare.

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Originally Posted by MannyIsGod

So if I'm an investor I can't get any information on probable reserves from an oilco? That seems really bizzare.

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because "probable" is too easily manipulated and the shareholder could be (and would be) taken advantage of.

Interpretation of their prospects is also proprietary, though much is shared after the fact.

They can give you EUR's (Estimated Ultimate Recoveries) of their producing properties, but they cannot with any degree of accuracy (whether they wanted to be accurate or not) tell you how much oil will be produced from a prospect that does not have a wellbore through it.

Well I completely agree that it is open to manipulation which why I brought it up above. I am glad to see that in theory that practice is regulated although I'm not completely sold on the extent to which thats the case.

Call me skeptical but after seeing what corporations and creative accountants are capable of I am leery of just this sort of thing.

Hey just cause I'm paranoid doesn't mean theirs NOT a conspiracy out to get me! ;)

Even for EUR's...

A reservoir engineer will be able to tell you with confidence and accuracy how much oil can be produced from a feature right after the last barrel is produced...

That's just the nature of the oilfield... there is a lot of uncertainty... it is risky as hell... weird ass things happen...

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Originally Posted by MannyIsGod

So if I'm an investor I can't get any information on probable reserves from an oilco? That seems really bizzare.

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You can't from anything that company files with the SEC. Is there some other way to get that information? Wouldn't be surprised, but caveat emptor.

It's still possible for companies to "fudge" their proven reserves, but it doesn't come without risk. El Paso Energy is one company I can think of whose shareprice got hammered in the early 2000's after having to writedown their reserves a couple of times.