Black Gold, Texas Tea

Oil companies and many lawmakers are pressing to open up more U.S. areas for drilling. But the industry is drilling on just a fraction of areas it already has access to.

Of the 90 million offshore acres the industry has leases to, mostly in the Gulf of Mexico, it is estimated that upwards of 70 million are not producing oil, according to both Democrats and oil-industry sources.

I better alert my Mom that the we could be producing oil in our backyard. That quarter acre is going to waste!

But the oil industry says it pays millions of dollars for these leases, and that it would not make sense to purposely leave the areas untapped.

Rather, years of exploration is required before drilling can even begin. In some cases, no oil is found on leases they hold. In others, drilling the wells and building the pipelines takes years. It is especially hard now that a worldwide boom in oil exploration has pushed up the prices - and timelines - for skilled workers and specialized equipment.

"No one is sitting on leases these days," said Rayola Dougher, senior economic advisor for the American Petroleum Institute. "Those making those assertions don't understand the bidding and leasing process."

It might make sense to sit on reserves when oil is US$ 12 / barrel. But at US$ 135, I think I'd be pumping like mad. The incentive to hoard would only be there if they think oil will continuously rise (a distinct possibility) or if they have a bottleneck in their ability to sell it somehow.

OPEC used to have trouble with this - they would deliberately try to limit supply, but then member nations would cheat by pumping extra. I think US oil companies don't control enough of the oil supply to attempt to limit the supply. They could simply free-ride on the OPEC controls instead.

Also the fact that older, previously unprofitable wells are now back in operation rather defeats the idea that they are hoarding reserves.

Bonus Link to this classic Onion article.