August 11, 2008

Most N.M. Leases See Drilling

By Copyright 2008 Albuquerque Journal By Andrew Webb Journal Staff Writer

Opponents of opening new areas offshore and in Alaska to oil drilling frequently cite the fact that millions of acres already leased by oil and gas companies sit idle.

Oil companies, they say, are hoarding and should drill these leases before potential new fields are opened.

But, in New Mexico, more than threefourths of leased federal acres are delivering natural gas or crude oil.

Some of the leases that aren't producing simply came up dry, and some others have been tied up by environmental and conservation groups opposed to drilling. Those include Otero Mesa in southern New Mexico and the Galisteo Basin north of Albuquerque and near Santa Fe.

The state's Oil Conservation Division, which regulates groundwater protection on state and federal land leased to oil and gas companies, has also blocked some new exploration on leases in Rio Arriba County.

Big picture numbers: The Bureau of Land Management has leased 5.4 million acres of federal land to oil and gas producers in New Mexico. Of that, about 3.9 million acres are in production, according to Tony Herrell, the BLM's state deputy director for minerals.

Herrell said leases where exploration efforts didn't find oil or gas will likely expire at the end of the 10-year federal limit.

The drilling question has moved front and center in the presidential, Senate and congressional campaigns.

Republicans, including presidential candidate John McCain and Rep. Steve Pearce, R-N.M., who's running in New Mexico for a U.S. Senate seat, favor aggressively opening more areas offshore to drilling in an effort to hold down or lower gas prices at some point.

They also say they support development of alternative energy sources, but need more domestic production ASAP as motorists and the economy have struggled with gasoline in the $4 range.

McCain previously opposed more offshore drilling and still isn't ready to tap into the Arctic National Wildlife Refuge in Alaska -- something favored by the Bush Administration, Pearce and Sen. Pete Domenici, R-N.M.

On the Democratic side, Barack Obama not long ago dismissed more offshore drilling as a gimmick that wouldn't help bring down gas prices, but now says he's open to some new offshore drilling as part of a compromise that boosts alternatives and promotes conservation.

Rep. Tom Udall, D-N.M., who along with Pearce is seeking the Senate seat being vacated by the retiring Domenici, opposes drilling at ANWR.

Udall in 2006 voted to continue a ban on energy exploration on the Outer Continental Shelf but said recently that Congress should look at outer-shelf drilling on a case-bycase basis.

Drilling roadblocks

For New Mexico leases not being drilled now, there are practical roadblocks in addition to legal ones.

The president of the state's oil and gas trade group acknowledges that personnel and equipment are stretched thin. If more federal land is opened up, the industry would have to build more rigs to tap it.

"If you're going to open up areas that haven't been opened before, there will need to be large capital expenditures on the part of our industry," said Bob Gallagher, president of the New Mexico Oil and Gas Association.

"It's very equivalent to developing a neighborhood," BLM's Herrell says. "It takes years to develop and build out a lease, to put through all the permits and clearances, get rigs and drill. Once you couple all that with demand, it's something you have to think about years in advance."

Gallagher acknowledges that a shortage of drilling rigs could slow new development. There are about 1,900 rigs in use today, compared with about 4,000 in 1980.

"In the '80s and '90s, there was such a roller coaster ride of oil prices that a lot of people left the industry," he said. "Lots of rigs were cut up and destroyed."

Opening new land to exploration, he said, would incentivise industry investment in new equipment and employees.

The state's 1.5 million leased-butnonproducing acres are part of an estimated 68 million acres of inactive federal oil and gas leases nationwide cited by opponents to opening more areas for drilling.

Opponents have argued that it would take years before any new areas would produce and question why existing oil and gas firms aren't using the land they already have leased.

David Albersworth, a federal land policy expert with the Washington, D.C.-based Wilderness Alliance, argued that much of the land sits unused for the same reasons gasoline prices reached such heights in recent months -- speculation.

"There are people in the business of leasing with no intention of developing," he said. "They lease the land with the intention of selling it to someone else as oil prices go up."

Furthermore, oil companies count such leases toward their bottom line, he said.

"One of the most significant aspects of any oil company's share value is the reserves it claims it controls," Albersworth said. "So if you buy a federal lease, you can claim you have 'x' billions of oil or gas, and that enhances the value of your company."

The U.S. is the third largest producer of oil after Saudi Arabia and Russia. But, according to the Department of Energy, we still import nearly 60 percent, or about three and a half billion barrels per year, from Canada, the Middle East, Venezuela and other oil- producing countries. Gallagher says the often quoted "68 million" unused acres remains a drop in the bucket -- about 1 percent of federal land currently off-limits to drilling.

Much of the unused acreage, he suggested, is within a few miles of producing wells, and the leaseholder eventually will get to those as equipment and personnel allow.

"It's not feasible to build a new rig to go that short distance when you're going to go there anyway," he says. "Paying the lease and waiting a few years is a good business decision."

The environment

Jim Baca, a former state land commissioner and Clinton-era BLM director who now serves as Gov. Bill Richardson's natural resource trustee, questions drilling in general.

"Frankly, the one thing that gets lost in all this 'drilling for more oil' talk is the back end of the equation," he said. "If climate change is indeed occurring, the use of oil ought to be called into question. We're pumping all these climate change gasses into the air -- that's the real challenge."

(c) 2008 Albuquerque Journal. Provided by ProQuest Information and Learning. All rights Reserved.