Exxonomics: The path to a debt-free AmericaWritten by Ben Treece | | email@example.com
What if we told you that the U.S. is sitting on enough resources that we could start to pay down the national debt, create thousands of jobs, increase tax revenue and become energy independent all by one simple action: Drill our own oil. Despite Washington’s best efforts, unemployment remains high, GDP growth has been lackluster and social welfare costs have skyrocketed. It is time for us as a nation to think outside the box to solve our problems and help ourselves.
A college professor once told me that the U.S. is a unique nation that cannot be compared to any other. He lectured to us that our diverse climate and geography made it possible for us to grow a variety of produce and that we were abundant in natural resources such as oil, natural gas, coal, gold, silver, platinum, copper, lead, zinc and nickel. Massive mineral deposits and oil finds fall under federally owned land, and while some of these resources have been captured, many have been left untouched for environmental and political purposes. The U.S. is missing out on billions of dollars in revenue not just from the resources that we refuse to extract, but from the resources that we have already taken from Mother Earth.
Companies mining on public land pay no money or royalties to the federal government, per the General Mining Act of 1872, which was aimed at promoting Western expansion. Unchanged since 1872, it states that purchasers of land claims pay $2.50-$5 an acre in addition to permits. Testimony by Stephen D’Esposito before the Senate Energy and Natural Resources Committee on April 28, 1998, stated that, according the Mineral Policy Center, mining companies extract $2 billion-$3 billion per year from federal land royalty-free.
When a company wants to drill for oil, they must obtain local and/or state permits and they must purchase a claim to the land. Quoting the American Petroleum Institute, “… In order to obtain federal leases, companies agree to pay a royalty to the government based on the value of the oil and gas produced. For onshore leases … a royalty share of one-eighth of the value of production be paid [sic] to the government. For offshore leases … a royalty rate of not less than one-eighth the value of production. The offshore rate for leasing beginning in 2008 is set at 18.75 percent.” In short, when drilling is done on federal land, the government turns a solid profit, as it should.
Let me clarify that we are in no way opposed to alternative energies, we just do not believe in hindering one industry in order to promote another. The Department of Energy Office of Petroleum Reserves has reported that more than 10 trillion barrels of recoverable oil fall under federal land. The Green River Formation alone has an estimated 8 trillion barrels of recoverable oil, 80 percent of which falls under federal control. This does not include the vast amount of natural gas that the U.S. is sitting on, by government estimates according to National Geographic, of 2.214 trillion cubic feet.
If the U.S. capitalized on its own resources by raising royalties to 25 percent on minerals and oil, assuming $2.5 billion in minerals excavated from federal land and 676 million barrels of oil a year average that we have produced from federal land under President Obama’s administration, at current market prices, the U.S. would earn over $14.6 billion a year. Remember, too, that according to the White House we import roughly 45 percent of our oil. If we were energy independent and produced every one of the 7 billion barrels of oil we consume annually in the U.S. from federal land, royalties would be nearly $150 billion per year. While this money would still not pay off current debt levels for more than 100 years, it would still provide the government with the opportunity to get on a path to solvency. Extracting this oil would also create jobs, increase oil supply thus lowering fuel costs and increase payrolls, which would supply more tax revenue to the federal, state and local governments.
Current economic, energy and business policies in the U.S. simply are not working and have not been working since 2006 when the Bush administration increased federal spending levels. It is time to take a different approach and time to put Americans back to work. Domestic resources might just be our ticket to prosperity.
Ben Treece is a 2009 graduate from the University of Miami (Fla.) with a bachelor of business administration degree in international finance and marketing. He is a partner with Treece Investment Advisory Corp (www.TreeceInvestments.com) and a stockbroker licensed with FINRA, working for Treece Financial Services Corp. The above information is the express opinion of Ben Treece and should not be construed as investment advice or used without outside verification.