The OCS - Our Nation's Piggy Bank

Tomorrow night at Hofstra University presidential debate moderator Bob Schieffer is sure to ask: "How does the economic crisis affect your plans for the future?" It will be the third debate in a row that candidates have heard the question, and it isn't getting any easier to answer. Having spent countless hours planning, no one wants to have to think about scrapping half their platform before they even get the job.

So we're going to help them. We're going to give them more than $1.56 trillion to fund future priorities. And we're going to do it by opening up a piggy bank that has been locked up for almost three decades, a piggy bank called the Outer Continental Shelf (OCS).

The OCS contains 85 billion barrels of oil. For each barrel of oil that is produced the U.S. government receives a royalty payment. Since the OCS has been off-limits for three decades the royalty amount has not yet been established. So let's look at Alaskan oil where the industry pays a royalty of $18.36 per barrel. Assuming the royalty will be similar, it is a simple calculation of $18.36 per barrel times 85 billion barrels that gives us our base funding number -- but wait.

These numbers are conservative. First, the United States has not physically inventoried the area in decades. Second, with new equipment and drilling techniques it is very likely to have much more than 85 billion barrels. This has certainly been the case in other areas such as Alaska. Thus, we could be talking about trillions of dollars in royalty payments to the citizens of the United States.

On top of the royalties, there would be corporate taxes in the hundreds of billions of dollars and income taxes on the thousands of jobs that would be created. Furthermore, these calculations do not even include the royalty payments on the 420 trillion cubic feet of natural gas in the OCS.

Congress, in the last few weeks, let the prohibitions on drilling in the OCS expire; however, many members want to reimpose them in the next Congress. Nothing could be more foolhardy, especially at a time when the revenue is needed. At some point this nation needs to pay for what it spends.

In addition to revenue there is another huge benefit. The 85 billion barrels in the OCS would also offset purchases of foreign oil. Even if oil dropped to $50 a barrel the United States would reduce its purchases of foreign oil by $4.25 trillion over the life of the OCS.

For decades, many in the business community have pushed to open up the OCS and have been frustrated by the fact that Congress locked up these reserves. Nevertheless, like many thing in life, it has worked out for the best. We now have a piggy bank with huge savings, just when we need it most.

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Comments

[8IZENUF]

I disagree, I think Obama answered that question. A sound strategist knows what programs will need to be phased in and what programs that will be necessary and be able to balance the costs. You're right McCain said nothing other than to freeze all spending except, war spending and entitlements assuming that is social security. How would oil provide an open piggy bank? We don't have all the facts. You say that the oil drilled here in new fields (ie. OCS) will directly offset what we current import and we will get royalties?? But we have also heard it is cheaper to import than to use our own production. We also heard it will take 10 years for new production to offset anything in our market. We need more facts on oil before we count it as party of our piggy bank and think it will solve our problems.

We spend more than we make, it's true. And now we need to shuffle the bills so to speak. But drilling is not going to solve any immediate problems. We need to get our nation back to a nation that produces, things, technology, processes. We have taken the easy way, and drilling off shore sounds like it's more of the same!

[mjt218]

I agree with the poster that neither candidate has really answered this question, and I don't expect either of them to really do so in any consequential way. Even if they did, I think George Bush has been one of the only Presidents to actually keep a campaign promise after coming into office ($ amount of his tax cuts in 2000 campaign).

I agree with you that we can't rely on oil to solve our problems, especially short term. However, even if OCS oil is more expensive to produce than imported oil, we get more bang for our buck out of it. The poster correctly points out that the government will get royalties, jobs will be created which leads to income taxes, etc. This is where the advantage of offsetting foreign oil purchases lies. Yes, these advantages may be ten to twenty years away, but they are real advantages.

[Aaror]

Oh course you ignore the biggest problem...
How do we get the oil companies to drill?
The oil companies buy the leases on our land to lock it up (and have it 40 years from now when it is worth them using it). They have no intention of drilling most of the land any time soon-look at how many acres are leased and not being used.
Now an idea we should pursue is taxing leases that are not being used, and if the company doesn't pay the taxes, we can re-lease the land. Eventually either the companies will drill, or they won't be able to keep the wildcat drillers off the land, and those folks will drill (the reason they lease the land is to keep the wildcat drillers from drilling and providing oil outside their oligopoly).

[mjt218]

Every single lease that the federal government issues has either a five or ten year term on it. If an oil company cannot show that is proactively taking steps to develop resources contained within the lease, the lease is relinquished back to the government (the company does not relinquish the lease early). In many cases, the same lease is rolled into the next round of lease sales, and resold.

[TxAggie]

MJT is exactly correct. Federal OCS leases are expensive to acquire, maintain, evaluate and drill. Oil companies do not buy them for kicks. Oil companies buy leases to drill and make money- there is no value in buying leases in the OCS without evaluating that inventory. Drilling is the last step in the exploration cycle and the least used tool- it is not reflective of effort in and of itself. When the dems came out with their "68 MM acres of "unused" leases (which is a myth disputed by the DOI) talking point, I polled my major company compatriots and each company has a systematic method of acquiring, evaluating, drilling or dropping their inventory of federal OCS leases. Smaller companies (like the one i work for) have smaller inventories (less than 200 leases) which we have to evaluate systematically because of the time required to shoot seismic, shoot hazard surveys, permit then drill and the high cost of maintaining such leases during the interim. If we cannot develop drillable prospects, we relinquish the leases, do do otherwise makes no economic sense. As boring as that seems, there is no conspiracy to keed the "wildcatters" off the leases, we are the wildcatters.