Wednesday, March 30, 2011

Moribund Resource Leases Primed For Activity

Here's a surprising release from Uncle Sam's primary grantor of leases for energy development, the Department of the Interior.  Many leases granted for energy production are currently unused:

A report requested by President Obama and released by the Department of the Interior shows that more than two-thirds of offshore leases in the Gulf of Mexico and more than half of onshore leases on federal lands remain idle, neither producing nor under active exploration and development by companies who hold those leases.

This lack of activity represents a prime opportunity for investors in an age when hydrocarbon resources are increasingly difficult to find.  Many of these leases are probably inactive due to the higher costs of drilling and extracting in certain regions.  Environmental regulations for drilling on federal land make drilling difficult and costly even in well-explored areas.  The next logical step for the federal government to take is a review of regulatory obstacles that are keeping leases out of active production.  There's plenty of disagreement over whether these leases are as inactive as the government claims, but there's also plenty of room for more domestic oil and gas production. 

Full disclosure:  Long TDW with covered calls.  That's an offshore oil services company.