Is It Too Complicated To Point Out That Oil Leases Are Just A Way To Cook The Books?

The problem, of course, is that Big Media is in full spin mode, and most people don't get the idea that the offshore oil drilling leases will not lead to new oil coming on line for at least 7 years at the earliest, and it will not really impact price, since the U.S.'s reserves are so miniscule.

However, this is not a new idea, and is it worth pointing out that the real purpose of the push is to all ExxonMobile to cook the books, and the reason for the push is that an Obama administration is not likely to approve such leaes, and may very well review the status of current leases?

Too complicated for working class Americans?

http://www.msnbc.msn.com/id/5111184

/snip

“The aggressive leasing of public land pushed by the Bush administration is a land grab, pure and simple, giving industry more and more control over public land while costing taxpayers millions of dollars,” said Peter Morton, a resource economist with the Wilderness Society.

Morton said the leases, which companies can lock up for 10 years with annual rents of only $2 to $3 an acre, are an economic boon to some companies because they count as assets that can make debt refinancing easier while also attracting potential investors.

The Energy Task Force headed by Vice President Dick Cheney asked the BLM three years ago to find ways to open new federal lands to oil and gas leasing and to speed up the approval of drilling permits. To meet increased demand for natural gas, the task force said drilling on federal land will have to double by 2020.

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For oil companies, vast holdings of federal oil and gas leases, even if undeveloped, show up in their financial records as assets that help attract investors.

“Absolutely,” said Mark Burford, director of investor relations for Tom Brown Inc., a Denver-based independent oil company. Tom Brown has more than 850,000 acres of federal land under lease, but just 22 percent is listed as producing, according to BLM records.

“In our investor presentations, we talk about the very large inventory of drilling locations on our acres that are prospective, and a lot of that would still be undeveloped,” Burford said. “But based on our knowledge of the producing areas and the formations, that acreage is very prospective and very likely to work out as far as becoming producing.”

* * *

That isn't a land lease, right? They've only got drilling rights there. It would apply to ANWAR, but neither candidate is (yet) arguing in favor of that.

And because it is an asset, the oil companies get to show that asset on their balance sheet. I only know very, very basic accounting, but as I understand it, there is no difference between oil leases on land or on water for purposes of booking the lease as an asset.

If before Bush leaves office, or if McCain is elected, the oil company can lock in an oil lease for a nominal lease amount, then the oil campany can book the lease as an asset, thus artificially improving the financial position of the oil company:

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

So, it sounds like an accounting trick to enrich the oil companies in the near term. That is why it is so urgent despite the fact that any oil is about a decade away from being realized. The immediate impact is that oil companies gets to book the lease as an asset, which immediately improves the financial position of the oil company.

The big problem is that this does not pass the third grader test. I have a very basic understanding of bookkeping principles, but to have political traction, it needs to be understood by a third grader via a 20 second soundbite.

Sadly, the offshore oil/accounting fraud issue really does not pass this test, yet this is the real elephant in the room. Its not that the oil won't be available for close to a decade or that it won't really affect price. Rather, the elephant in the room is that oil companies are looking for a near term boost in their balance sheets.

I don't think oil companies really *need* to improve their balance sheet right now, but that doesn't mean they wouldn't want to supplement the incredible profits they're already making... And controlling territory, whether land or sea, would give them more diversity than just the oil biz.

My earlier suggestion would address this issue. I'll repost it, both for your sake and because I hope that this idea, or a variation of it, will get more popular:

Given that the oil companies already have so much area they refuse to drill, why not allow an acre-by-acre exchange for offshore leases that are within the same state, as long as they aren't critical endangered sea life areas, etc.?

That would allow Obama to keep away from giving *more* area to oil companies and still address the silly drilling issue in a way that takes leverage away from McCain. My bet is that, given the overburdened drilling schedule oil companies have in better areas, you'd see none of these areas actually used.

You might prod the companies into going along with this by putting a sunset on their current oil leases when no drilling has commenced, and giving them a longer lease sunset on areas they trade to get.

The result would be the exact same amount of offshore territory held by oil companies, the likelihood that they wouldn't drill anyway, the eventual reverting of most of that territory from the grip of the oil companies, and every one of the McCain/Bush arguments evaporating.

And increases the net worth of the Company. As noted in the MSNBC article, it is a cheap way to make the oil company's stock look more attrative without actually generating any real additional value. In other words, its relatively cheap bookkeeping trick, that is difficult to explain to the American public, just as explaining exactly what Enron did. The oil companies are placing heavy pressure now, and McCain is making the case right now, because the oil companies want to lock in the leases right now, which immediatly makes their stocks look more attractive.

Otherwise, why are the oil companies so urgent given the long time it takes to actually generate oil, as well as the fact that oil companies are not utilizing the oil leases they have right now?

If you give someone something, of course they have more than they had before. It's understandable that oil companies want something to be handed to them. That's not inherently evil, it's just being loyal to their stockholders and working within the capitalistic principle of greed.

The politicians who give these things to them are another issue. That's why I suggested, instead of *handing* them leases, requiring them to *trade* existing leases:

* It works well for the oil companies, because they can trade leases like baseball cards -- giving away the ones they aren't using to get potentially more productive sites.

* It works well for citizens, because it means that oil companies won't get anything more drilling area than they already have.

I suspect it would also pretty much prove the fact that the reason nobody is drilling offshore in areas they already have is because their equipment is already dedicated to more potentially productive sites in other areas of the world.

Whether or not that proves to be true, it would completely resolve any right-wing talking point about domestic offshore drilling, without giving oil companies a single acre of lease rights more than they have now.

In any case, no leases should be unconditionally assigned. There should be some kind of "use it or lose it" stipulation that negates the asset manipulation you're describing.

The speculation about speculation being to blame was the shoulder shrug of a kid who can't speak for the cookie in his mouth. The neocon nation-rapists are at the heart of the entire thing, as usual.

The WH is putting up a smoke screen of high gas prices and whining about the Dem congress' refusal to move on an energy bill, while they try to procure more land before the election.

It is also very telling about who they think will win said election. They seem to be in snatch and grab mode.

as always, it takes more than a sentence to explain our position therefore we have a hard up hill battle to explain anything to the low information masses.

In fact it appears the attention span is shrinking to the point where one word platform planks are what the low info's are looking for ie drill, surge, and taxes.

You got a two sentence encapsulation of a point...forget it, you've already lost because it's always easier to process a word.

Look at what we face this cycle, the GOP is once again rolling out trickle down like it hasn't been gutting the nation for 30 years, and dumbasses are buying it AGAIN!!!!

We cannot escape this treadmill, the GOP is all in and at least a 1/3 and maybe half or more Democrats buy into this nonsense. We give them a corporate globalist and they still cry socialist.