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Petition to BOEMRE on Option Value

This morning, Policy Integrity petitioned the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE) to reconsider its leasing policies, which may encourage over-drilling. The topic is the Outer Continental Shelf Lands Act’s (OCSLA) requirement of the Secretary of the Interior to develop five-year schedules that specify the timing for offshore leasing activity.

The petition urges the Interior Department to adequately account for all relevant economic factors and to quantify all costs and benefits as fully and as accurately as possible. Currently, the decision to sell a lease is made using an out of date formula that could be costing taxpayers a great deal. It views off-shore drilling as a now-or-never decision, ignoring the option value of waiting to lease and drill in the future.

Innovation in both production, safety and cleanup techniques will likely lower the costs of drilling over time while the benefits (e.g. the market price of oil) fluctuate from one day to the next. Given these uncertainties, incorporating the option value of a resource would allow us to drill at the optimal time—when the oil can be sold high and environmental costs are low.

Policy Integrity has petitioned the agency to use its statutory authority to account for the option value of offshore resources in its current leasing program and in future leasing decisions and programs, especially the planned 2012-2017 Program.