Sunday, June 29, 2008

Delusional Or Deceptive Democrats?

During a press conference June 18, New York Democrat Congressman Maurice Hinchey spouted a repackaged conspiracy theory, instead of addressing the issue of the economic crisis caused by the rising price of a barrel of crude oil.

Mr. Hinchey said, "President Bush and Republicans keep talking about the need to open up more federal land for drilling, but they ignore the fact that there are 68 million acres of untouched federal land that oil companies already control. The oil companies are simply sitting on those 68 million acres until oil prices rise to $200 or $300 a barrel when they can make even greater profits at the expense of Americans."

During the 1973-74 Arab Oil Embargo, the conspiracy theorists spread rumors that were very similar to Mr. Hinchey's. Only then, the conspiracy theory was that there were tankers, full of oil, anchored only miles offshore from the United States, which would not dock, because the evil oil companies wanted to create more shortages and jack up the price of gasoline so they would make even more outrageous profits.

This theory was untrue as is Mr. Hinchey's.

There is only one of two reasons for this claim, either Mr. Hinchey and his fellow "progressive" Democrats in Congress are intentionally trying to deceive the American people - or if they really do believe this - then they are woefully ignorant of the real world.

These are the facts, which you will not learn anywhere else.

The United States government provides leases for oil and gas production to private companies which, "... grant the right to the lessee to explore for and develop minerals or other products located on a specific tract of land. The lease instrument defines the duration of the lease; acreage covered by the lease; rental and royalty terms for each mineral; as well as any revenue sharing mechanisms."

Note, the government gives companies the right "to explore for" oil and gas. The government does not guarantee there will be any. Nor does the government guarantee there will be sufficient quantities to be commercially viable. Nor does the government guarantee anything will be found during the term of the lease.

It is just one big gamble for the oil company. It is quite possible that at the end of the lease period the company has not found any oil.

As of 2007, there were a total of 66,232 leases and 91, 755, 078 acres for oil and gas. Of this amount, 37,982 leases for 67,055,715 acres nonproductive (so the Democrats 68 million figure is incorrect by 1 million acres).

These leases are expensive. Recently, Royal Dutch Shell bid $18,497 an acre for one tract. Not only are billions paid to acquire the leases, royalties and rents are also paid. For fiscal year 2007, the government received revenues of $11.4 billion. Furthermore, the duration of the leases can be only five to ten years, which are renewable, if deemed commercially productive.
So, for one to believe Mr. Hinchey and the Democrats, one has to willingly suspend disbelief. One has to believe that the oil companies are going to invest billions of dollars for unproductive land on the chance - the chance - that the price will increase.

However, even a price increase does not guarantee they would realize a profit. They must have all their equipment in place and begin pumping the oil from the ground as soon as they get their price - which could decrease as soon as their oil gets to market.

What Mr. Hinchey and the Democrats claim ignores the time value of money and basic laws of supply and demand. As wealthy as oil companies are, it would be insane to leave billions of dollars tied up in unproductive leases and to keep paying billions more in rent just for the chance of making more. These companies did not become wealthy by being stupid. Not selling an asset, when it is getting record prices, is stupid.

Listening to Mr. Hinchey and other Democrats, one cannot help to recall the words of George Orwell. When he heard the conspiracy theory that American troops came to Britain during World War II not to fight the Germans, but to stop a workers revolution, Orwell said "One has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool."
Only the liberal intelligentsia can believe Mr. Hinchey and the rest. Average Americans are not fools.

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