Burning question: Whose oil is it? Who owns it? Who gets to profit off of it?

[rainy]

When BP extracts oil off our coasts, my understanding is that all they have to do is pay us a fee. After that the oil goes into a pool of other oil and is sold on the market. Thus, we have to buy it back from BP. I heard a man on C-Span this morning and he was talking about BP getting the oil out of the ground. He said "how else are we going to get "American oil?" American oil? Is it ours? Do the American people get the profits from the sale of "American" Oil? I don't think so. My burning question is what happens to the oil after BP takes it out of our waters?

Does anyone here know?

[Statistical]

1. Very simplified explanation on ownership of oil.

BP (and anyone else interested) purchase leases on blocks of area they suspect contains oil. Some of it doesn't some of it does.

The taxpayer "cut" is limited to the lease purchase price. Unlike most (sane) countries we use a lease model. There are essentially 3 models used for "resource management".

1) Lease model. Company purchases lease from government for public lands. Say $5B for 10 years. Any oil found is the property of company. They renew lease if it is warranted.

2) Delivery model. US govt retains ownership of oil. They allow companies to extract said oil and when sold at market the US govt is paid a %. Say $45 per barrel on a sliding scale.

3) Service model. The US govt retains COMPLETE ownership of oil. The have oil companies bid for cost to extract oil. Oil companies are paid a service fee to turn oil into the ground into a production well. The US govt receives 100% of revenue for selling oil on open market (minus service fee for exploration, production, delivery).


Most of the world uses method #2. Some countries use method #3 (mostly Middle East countries). Method #1 is the most profitable for oil companies as it gives them ownership of a very valuable commodity.

As a result the 6 major oil companies only control 8% of the worlds oil (mainly oil in the US and other western nations). 92% of worlds oil is owned by governments (and thus citizens of those governments).

[DURHAM D]

3. I read a few weeks back that the U.S. receives 20% of production.

# 2

Same article said that some countries receive up to 75%.

[TTUBatfan2008]

10. I work in the industry...

My company has a lot of federal leases in New Mexico. The government usually asks for 12.5%, which is the old 1/8th that used to be a lease standard in the industry. These days, fee landowners (citizens) usually ask for 20-25% and some even ask for 33% depending on how productive the location is.

[DURHAM D]

12. So why do you think our government -

is not driving a better bargain? If farmers and ranchers have figured it out why hasn't the government?

Glad to receive your information.

[TTUBatfan2008]

14. Here's my guess...

Corruption within the MMS. I work for an independent O&G company. My job is just to make sure we get paid on stuff we own an interest in but don't operate and to make sure our purchasers pay us on stuff we do operate as well as making sure the royalty owners get paid on the stuff we operate. This obviously includes the MMS when I'm dealing with federal wells. My company only has around 280-290 employees, so we are tiny compared to the big dogs like Exxon, BP, Chevron, and Shell. Thanks to the investigative reporting that has gone on lately, we now know that the MMS was exchanging regulatory waivers in return for jobs with some of these big oil companies. An investigator for the MMS exchanged waivers for a $65,000 per year job with Shell for instance. If that kind of blatant corruption exists, then who is to say that a general "wink wink, nudge nudge" understanding on royalties doesn't exist as well? Like you said, if Joe Schmoe and his lawyer have figured out that they can reasonably ask for 25% today, why is the government asking for half of that when the government has a ton of mineral ownership throughout the country? It doesn't make much sense and I've never been able to understand it myself until the recent events. Now that we have reports of corruption coming out, it's starting to make sense to me. As a small fish in a big sea, I can say that the smaller royalty rate has probably been very beneficial to my company (and consequently to me) but I can also say that we don't have the kind of power to actually influence the government like BP and their big shot buddies.

[DURHAM D]

19. Thanks.

Glad to know about the current rates. We (family) have some old wells at 1/8. The first one was drilled in 1937 and still pumping. Original agreements were negotiated by my grandfather. There is all sorts of new production on the farms around us and we recently got a call from a company out of OKC about leasing some of the acreage that had 5 stripper wells (Kansas City & Arbuckle I think) that were plugged in the 1960s and 70s.

We were also contacted by some producer from a neighboring farm to use our salt water disposal wells. They offered same prices that they paid back in the 1960s. We held out for more money then blew them off. It was really funny because the head guy called and said that if we don't agree to their ridiculously low offer they would close down the wells. He was so damn stupid he didn't realize they weren't our wells and we could care less. They are still hauling it out - at least twice a week.

[TTUBatfan2008]

20. Sounds like some shady stuff...

I always try to warn royalty owners about people who might call them inquiring about their interest. There's a lot of sneaky stuff that goes on. We had an old royalty owner who accidentally sold all of his mineral rights across the country to some d-bag outfit that we knew was questionable. We couldn't do anything about it because we only found out about the transaction after it happened. They gave him $20,000 and he owned minerals in quite a few areas of both Texas and Oklahoma. The only good thing was he is in his late 80's and he told us he really needed the money, even though he didn't want to sell all of his rights. But short term hopefully it worked out for him.

[rainy]

4. Thanks. I'm pretty sure the public doesn't see it this way.

They think it goes into some reserve to be used by us when we need it. So you are saying we don't really own the oil. We have to buy it from BP when it goes to the pool of oil. And,they just have to pay us a fee to get a permit to drill?

[TTUBatfan2008]

11. That's not my understanding of it...

I work in the industry and help make sure the MMS gets paid on federal leases. We are not involved in offshore drilling so I cannot speak specifically about that aspect of the business, but federal leases onshore usually have a 12.5% royalty for the government (MMS). That is pretty generous for the oil companies because regular landowners ask for 20-25% royalty clauses in their leases these days. 12.5% was an industry standard decades ago, and for whatever reason the government is still using it instead of keeping up with the market rate that citizen mineral owners are requiring in their leases. Perhaps that's just a sign of corruption in the MMS, which we now know has been a big problem.

[Statistical]

13. Exactly. Say you start a company called Rainy Oil.

The coast of Virginia opens up and you bid on a lease of land.
Say the lease ends up being $2.2 billion. You pay the government $2.2 billion this gives you oil rights on this section of seafloor for next 10 years.

Now if there ends up being no oil there (or no economical oil) well it sucks to be you. You just spent $2.2 billion on some worthless seafloor.

On the other hand say you find $500B worth of oil. Well you just struck black gold. Regardless of how much oil you find the taxpayer "cut" is the lease you purchased.

Most oil produced in the United States ends up staying in the United States.

This isn't due to a special US "pool" but rather simple economics. Oil is low cost from a density basis and thus transporting oil is expensive. Why transport it further than you need to right?

[rainy]

22. But why do the republicans make everyone think it's OUR oil, for US to use when

we need it. The public is terribly un-informed on this. Why would they want to make us all think drilling now is the answer when it does us NO good at all?

[Statistical]

9. Very simplified explanation on production/distribution of oil products.

So first post explains who "owns" the oil.

So what happens once it comes out of the ground.

Oil producers sell that oil on open market. Prices vary daily and are posted on world's exchanges. Oil producers often sell the oil to refineries and pipeline owners take a cut (like toll booth) on distribution of oil from well to refinery.

At refinery oil gets cracked into about a dozen products (from gasoline to butane to asphalt). The refined products get sold to a variety of retail locations.

The thing to understand about the big "integrated oil" companies is although they have a hand in each step (exploration, drilling, production, distribution, refining, retail) at each step oil is essentially fungible. When sold at pipeline network there is no difference between BP oil (Gulf killer) and Shell oil (Nigerian Delta killer).

[AnArmyVeteran]

18. You describe the corrupt scheme dreamt up by corrupt corporations & politicians.

The oil belongs to the people. But because oil companies have massive wealth they buy politicians who write laws enabling them to legally STEAL that oil from the people. Just because something is 'legal' doesn't make it moral, ethical or right. Any leases obtained through the purchase of political prostitutes are essentially fraudulent leases.

You're right, the people are supposed to OWN the government and through THEIR government any benefits from the resources in their nation belong to the people. The government doesn't own anything. It belongs to the people.

If not for the incestuous relationship between corrupt corporations and their political prostitutes all the people of the United States would receive payment for the extraction of any natural resource. Alaska is ironically the most socialist state in the country. At least in that state every resident receives an annual payment for the oil extracted from beneath their feet. I believe one of the lastest annual payment was $2,400 per resident, but it varies each year. This is the way ALL of the resources of this country should be shared. I'm sick of corrupt corporations stealing and profiting off of what belongs to the people of the United States.

I agree with most of your post, but most of the people in the Middle East live in total poverty and all the riches beneath their feet goes to their ruling class. The people in those countries do not own the oil. Kuwait is an exception, but most of the other Middle Eastern companies do not pass on the riches from their natural resources to the people.

[NYC_SKP]

2. As far as I know...

BP and others lease the mineral rights on the Outer Continental Shelf, which are essential US public lands under the supervision of the MMS division of the Department of Interior.

Under the terms of the lease, they own the oil extracted.

It is "American" only in terms of it's origin.

Similar to this is the processing of timber on public lands, the lumber belongs to the company that cuts it and mills it, and they pay royalties or fees to the Federal Government.

This is my understanding of it.

http://en.wikipedia.org/wiki/Oil_and_gas_law_in_the_United_States

[William Z. Foster]

5. blah blah blah

Now that the "experts" have weighed in...

The general public owns it.

The people of the world own the waters of the world, and the riches of the world. The people of the world have the right to an environment that will sustain life.

The world and everything in it belongs to all of the people of the world, including those yet to come. It doesn't "belong" to anyone for the purpose of exploitation and endangering of human beings and other life.

[Bryn]

7. Amen!

:thumbsup:

[Nite Owl]

6. My understanding is that the

companies lease the area from us. The oil that they extract is theirs and it goes on the market. We don't specifically get that oil.

[William Z. Foster]

8. it is all a con game

A bunch of double talk to cover up the truth - "we get it all and can do whatever we want, and you lose."

[The Straight Story]

15. US govt gets 20% based on the lease (Norway gets like 70% on their oil leases) (nt)

[TTUBatfan2008]

17. The federal leases I deal with are 12.5%, not 20%...

This is onshore stuff in New Mexico.

[AnArmyVeteran]

16. In the Middle East people live in poverty, while a handful of corrupt leaders steal all the oil...

All resources in a country belong to the people of that country. But corrupt leaders and soulless corporations conspire against the people to steal the resources right beneath their feet.

I wonder if there would be as much, or any, terrorism from Muslim extremists if their people hadn't been abused for the past 80 years by corrupt, opportunistic corporations stealing the treasures on their lands? I believe any people would feel resentment if the riches of their nation are shared only among the leaders.

[sabrina 1]

21. After reading all the comments in this thread, I am now

convinced that the oil business should be nationalized. Why are we leasing land to foreign corporations, getting only 12% profit from the oil extracted (according to the commenter above who works in the industry) then being told that we have to cut SS and other social programs to bring down the deficit? This is insane. And people in this country die every year because they cannot afford oil!!

I hope a lot of these questions are asked and answered on the media so that people begin to understand what has been going on in this country.