Paying Not To Drill

I'm spoiled for choice concerning topics on which to blog , including the first glimpses of the energy provisions of the proposed American Recovery and Reinvestment Act of 2009--better known as the stimulus package--and a rift within the US business community over the best way to set a price on greenhouse gas emissions, between a carbon tax and cap and trade. I'm sure I'll come back to those topics soon, but I must admit the story that most intrigued me this week concerned an event last month, when a young environmentalist disrupted the quarterly oil & gas lease auction of the Utah office of the Bureau of Land Management by successfully bidding on a clutch of leases, the terms of which he at least initially seemed unlikely to be able to fulfill. In the process, he has become a momentary Internet celebrity, with his own website and organization, apparently raising $45,000 with which to make the first payment on the leases and thereby potentially avoid prosecution.

At the outset, let's dispense with all the hyperbole about brave acts of civil disobedience in the cause of saving the planet. Let's also be clear that nothing I say here in any way justifies walking into a duly-authorized auction of a department of the federal government and bidding for mineral leases without the ready means of paying for them. I am not qualified to assess whether Mr. DeChristopher broke the law, but I can certainly relate to the reaction of other bidders when the situation became clear. Nor am I inclined to accept the excuse that the ends justify the means in this case. Having said that, it's hard not to admire the chutzpah that this took, at least a little bit.

According to the article in Monday's Washington Post, Mr. DeChristopher, a.k.a. "Bidder 70" outbid the assembled oil and gas companies on 13 leases totaling 22,000 acres in "the scenic southeast corner of Utah." He bid a total of $1.8 million for these leases, roughly 25% of the total of $7.2 million of winning bonus bids received for the 148,598 acres sold. If he intends to keep these leases, then in addition to coming up with the remainder of the bonuses he bid, he would also need to pay the contractual rental on them, amounting to $33,000 per year for the first five years and $44,000 per year for the balance of the 10-year lease term--not "decades" as the Post's reporter erroneously suggested. $45,000 is a good start, but he and his supporters would have to pony up another $2.1 million over the next decade to keep from defaulting, unless their strategy is merely to tie them up until the new administration halted leasing in the area, as noted in Mr. DeChristopher's letter of January 9 to his supporters.

If we ignore for the moment the part about not having the $1.8 million in hand or in prospect when bidding, this event might actually offer a model by which concerned citizens or groups could preserve onshore or offshore acreage that they prefer not to see drilled, either out of concern for the viewscape or for the environmental consequences of the production and consumption of oil and gas--notwithstanding the implication that it would be produced elsewhere, possibly under less scrupulous conditions. If properly financed, such efforts would be a lot more constructive than tying up the leasing and permitting process in the courts, particularly from the perspective of taxpayers such as myself, who do not share their viewpoint. The outcome might still increase US oil imports, but at least without depriving the government of its income on the leases, although it would forgo the substantial increase in revenue that accrues if oil or gas are found and produced, when modest rental fees are superseded by the 12.5 % royalty rates applicable to such contracts. Oil and gas rents and royalties earned the federal government nearly $13 billion in 2008.

I will be very interested to see how this case turns out, and whether Mr. DeChristopher's idea catches on--with the proviso that there is a crucial difference between backing up one's beliefs with real money and merely gumming up the works at the expense of the rest of us.