WMEAC Wants Oil Leases Audited

June 5, 2002
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GRAND RAPIDS — The West Michigan Environmental Action Council (WMEAC) has asked the state and federal governments to audit the oil and gas leases throughout Michigan and the country.

The local organization took the action this month in response to recent requests made by oil company executives for the right to drill on more public lands, like the Arctic National Wildlife Refuge and under the Great Lakes. Before the companies get additional rights to reserves, WMEAC wants confirmation that the terms of current leases are being met.

“The people of the United State have a right to know, before they open new territories and public resources to private acquisition, or before they expose the environment to new risks and probable damage, that the oil companies are making the best possible use of existing leases on public lands,” said Thomas Leonard, WMEAC executive director.

Leonard sent letters to U.S. Interior Secretary Gale Norton and to K.L. Cool, director of the Department of Natural Resources, requesting that audits be done as soon as possible. He also sent copies to Sens. Carl Levin and Debbie Stabenow, Attorney General Jennifer Granholm, Auditor General Thomas McTavish and area state lawmakers.

WMEAC has also filed Freedom of Information Act requests with the U.S. Interior and the DNR asking both to reveal what information is contained in previous audits, if any exist.

“We’re trying to verify whether such audits actually have been done. So far, from what we’ve been able to accumulate, oil production does get audited in the state of Michigan, but they don’t look at the issues that we are asking them to look at,” said Leonard.

“The last audit done in Michigan was in 1997, I believe, and are mostly interested in revenue verification.”

WMEAC is concerned that once an oil company gets a lease, it produces the minimum amount of oil required, stops drilling and then hangs onto the land — a strategy that keeps public property under private control. More leases, WMEAC feels, may just repeat this pattern, meaning that more public land would be lost to private interests that are often backed by foreign investments.

So WMEAC has asked the state and feds to compare the amount of oil drilled from each unit to the amount estimated to be in reserve on each property. Leonard said that this information would reveal one of three outcomes.

“Number one, that they’re using the wells to capacity or near it. Basically, they’re getting the oil out of the ground like everybody kind of thinks they are when we lease them a site,” he said.

“Number two, that they’re not living up to the terms of their lease because they haven’t started operations quickly enough to meet the terms of the lease, or they’re not producing in paying quantities. That’s kind of unlikely, but it’s possible,” he said.

“Third, that they’re getting the oil out of the ground in paying quantities, but basically only at the minimal rate. In other words, taking it out at a trickle in order to make the case for getting access to more public lands,” he said.

If the audits show that to be the outcome, then the organization would call for a halt on further leases. WMEAC would argue that the oil companies should be made to finish drilling on their currently leased properties before being given the rights to more public land.

“We know that they want access to oil reserves on public lands,” said Leonard. “One of the reasons they want it, we think, is not because they’re necessarily running short on oil, but because this is an opportunity to transfer oil reserves out of the public balance sheet and on to theirs.”

Oil companies bid on the leases for oil reserves in Michigan. The lease requires firms to pay a base rate and a bonus to the state. Usually whichever company bids the highest bonus gets the lease, and has five years to start production. When that gets underway, the company has to produce oil in paying quantities.

“What that is taken to mean, essentially, is that as long as they’re pumping enough oil to pay for the electricity to run the pump. That’s probably a little over-simplification. But essentially, just enough to pay for the installation,” explained Leonard.

“Then they can be said to be producing in paying quantities. And if they are meeting that criteria, then essentially they have those leases for as long as they want them.

“We think that if that is the way it’s set up, it’s certainly ripe for abuse, and it’s certainly set up for the benefit of the oil companies and much less so for the benefit of the state or the security of the country.”

The Mackinac Chapter of the Sierra Club, the Michigan Environmental Council and the Lake Michigan Federation have joined WMEAC in the audit request to the state.

This isn’t the first time WMEAC has taken on the oil industry. In the late 1970s, the organization led the fight to protect the Pigeon River from oil and gas exploration. The agreement WMEAC negotiated then is considered a model for protecting sensitive areas today.

Leonard told the Business Journal that he doesn’t expect much of a response from the Department of Interior, as President Bush has already said that he favors drilling on new lands. But he has more hope that the WMEAC request will stir a reaction from Lansing.

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