Former House Speaker and Republican presidential candidate Newt Gingrich, watching the failed attempt of the Congressional Super Committee last year to find an additional US $1.5 trillion in debt savings over 10 years, pondered the possibility that oil and gas development might be a solution offering long-term national security benefits. He also recognized the fact that the federal government holds mineral rights to 279 million acres.

Gingrich called Noble Royalties Inc. founder, president, and CEO Scott Noble and posed this question: “If the federal government were to manage the American people’s land with a fiduciary attitude comparable to that of a private firm, how much royalty would you generate, and in the process of that economic activity, how much in taxes would be generated?” It turns out the amount was larger than the Super Committee was looking for.

Taking on the task, the Noble team discovered that cumulative acres leased on federal lands have declined by 66% since the Reagan administration, from 126 million in 1984 to 39 million in 2010 and by 86% for average acres leased per year, from 9 million annually to 1.4 million.

Basing the premise on returning to 1984 levels of leasing activity on federal lands both onshore and offshore and with the aid of Netherland, Sewell & Associates Inc., Noble determined the government is leaving $785 billion in unrealized royalty revenues over a 30-year period.

Gingrich and Noble presented their findings at Hart Energy’s A&D Strategies and Opportunities conference in Dallas in September. Together they discussed this and energy policy in America with Hart Energy in an exclusive interview.

This exclusive interview with Newt Gingrich, Scott Noble and Hart Energy senior editor Steve Toon explores U.S. energy policy and the findings of the Noble Royalties study on federal lands. Gingrich speaks of the extraordinary importance of energy to the American economy, and how unconventional resources are rewriting the nation’s energy script. Topics include the Keystone pipeline, renewable energy, hydraulic fracturing and more.

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What role does energy play in the upcoming election?

Gingrich:
Energy is extraordinarily important. It is the number one plank in [Republican candidate Mitt] Romney’s plan for the middle class. It is something people instinctively believe represents opportunity. They identify it with jobs and economic growth, with national security, and lower prices. From their standpoint, it’s a triple win.

Energy itself is a job producer. Look at North Dakota at 3% unemployment. Less expensive energy is a manufacturing jobs producer. So in a state like Ohio, which now has an oil play, a gas play, and a big manufacturing base, you’ve got a lot of positive talking points.

Noble: Our industry has to learn how to message that correctly, to show how oil and gas development is opportunity, it is jobs, and how it can make a difference in people’s lives.

Should federal lands both onshore and offshore be opened up to exploration?

Gingrich:
Take all of the most scenic places – the national parks – and make them off limits. That leaves hundreds of millions of acres. We the American people own 69% of the state of Alaska. Alaska is more than twice the size of Texas. That means we own about one and a half Texases in public land in Alaska. The odds of finding oil and gas are amazing.

Eighty-four percent of Nevada is federal land. The last geological survey was in 1984, using 1984 technology and with 1984 assumptions about what drilling was practical. Half the US land has never been analyzed, and the other half was analyzed 30 years ago. To tell the American people, “We’re not going to allow you access to your own patrimony to develop these resources” is wrong.
Newt Gingrich, who spoke at Hart Energy’s A&D conference, told the audience that individual states should be allowed to decide whether or not to pursue offshore development. (Photos by Bryan Meyer; courtesy of Hart Energy)

Noble:
We calculated that if the Alaskan pipeline had been kept full, the government would have made $36.4 billion in lost royalties and bonuses to date and another $295 billion in oil and gas sales that did not happen. Only 30 wells have been drilled total in the past 10 years in Alaska on federal lands. It’s just alarming.

If the surface footprint in Alaska looked like it does in West Texas, you would have pushback from the public. How do you address those concerns?

Noble: West Texas was drilled to 10- and five-acre spacing. That’s not necessary today. We can get six to 12 well bores on one small pad site. The Pinedale area [in Wyoming] has shown us that we can have the least amount of disturbance with the most amount of reserves. The time is right. Technical innovation has allowed developers to maximize production of oil and natural gas while minimizing environmental impact.

Is hydraulic fracturing changing how America should look at energy?

Gingrich: This is a historic turning point. The combination of multistage fracing and horizontal drilling has made us the largest natural gas producer in the world. With the right policies, we could also be the largest oil producer. North Dakota, for example, has gone from 150 million barrels of reserves to 24 billion. And unemployment in North Dakota is down to 3%. It had seven consecutive tax cuts, and it has a state surplus of $1 billion in the rainy-day fund for a $3 billion budget. It’s a good story.

Recently, the US Geological Survey re-estimated Ohio at 42 times as much natural gas as they thought they had. Not 42% – 4,200% more natural gas. The current guess, and it’s only a guess, is there are 5 billion barrels of reserves in Ohio.

Nobody in Washington and nobody in the news media has come to grips yet with the degree that this is a change so profound that it restates the game – in jobs, in manufacturing, in foreign exchange, and in national security.
Gingrich and Scott Noble, founder, president, and CEO of Noble Royalties Inc., addressed the potential impact of greater access to acreage on the American economy.

Will the Keystone XL pipeline get built?

Gingrich: Romney said if he’s elected he will sign the executive order on the very first day. What Obama will do I have no idea.

But the idea that we are driving Canada into a Chinese alliance – in every possible way it’s destructive to us. It’s to our advantage on a practical level to have it come through Houston.

The pipeline can clearly be done in an environmentally safe way. We’ve been doing pipelines for 140 years. This is not exotic technology.

Noble: When you take a half a million barrels a day out of the pipeline (from Canada), you have to send that money overseas. Take that same amount of money and create jobs and opportunity at home.

What role might renewables have in an energy plan?

Gingrich: Investing in renewables at a research level makes sense. In the long run, it’s an additional part of your technological arsenal. It gives you a range of choices. It helps you at the margin on concerns like global warming.

But the idea that we’re going to take a renewable that is three to five times as expensive and be able to sustain it by public subsidy, or by making it so expensive to use fossil fuels (by raising the price of oil, gas, and coal) to make artificial competitiveness – those aren’t sustainable economically.

People don’t mind a little subsidy. They don’t mind paying 10% more. But when you tell them you might be paying four times as much, they think it’s crazy.

Is energy independence realistic in today’s world?

Gingrich: If by energy independence you mean North America, which is what Romney talks about, I have zero doubt we can achieve continental independence and not rely on Venezuela and the Middle East. If you say only the US, I’m not sure the price patterns quite fit that.

On natural gas, clearly we will be the leading producer in the world. By the end of the decade, with the right policies, we could be the leading oil producer in the world. If you add to that Canadian and Mexican production, clearly you have North American energy independence.

Noble: I see us quickly going from importing 11 MMbbl down to about 4 MMbbl. The challenge becomes the decline of the shale plays, which will be offsetting while growing at the same time. But we’re discovering and developing a new shale play every month. Going from 4 million to zero will be more geopolitical. That will be a tough decision. Who will have the last three contracts? That will be when the price of oil really comes down because the news will be there is an oversupply of oil and America is finally there.

What do you think America’s energy future will look like in five years?

Gingrich: A lot depends on the election. You have a growing sense of bureaucracy and regulation that is anti-energy, whether it is the Fish and Wildlife Department, the Environmental Protection Agency, or the Interior Department. The continual processes are slowing you down. Then you have litigation effects that also slow you down and raise the price even more.

If we retain an anti-energy bias in the Obama administration, you’re going to get slower growth. The fact is, the opportunities are so enormous that even determined government opposition only slows it down.

The Romney recovery will start in energy, and energy will pull forward manufacturing. The two of them will pull forward the value of the dollar, and our capacity to purchase worldwide will go up dramatically as the balance of payments shifts to positive for the first time in a long time. That’s very conceivable. You could see virtually all of the turnaround by the end of the decade.