In Oil & Companies News 15/03/2016
A lack of interest in a recent federal auction for Nevada acreage is the result of an ongoing, concentrated regulatory effort by the Obama administration to gradually push oil and gas development off federal lands, industry and Republican congressional sources said this week.
On Tuesday, the Bureau of Land Management tried to auction off 39 parcels of federal land covering more than 50,000 acres in Nevada for oil and gas development.
Not one bid was offered.
There were a number of likely reasons for the lack of interest in this oil and gas lease sale, including unattractive economics, unfavorable geography and operational risk.
“Nevada activity tends to be more exploratory and less certain than full production areas like the Bakken in North Dakota or the mature Permian Basin, so it is indeed more vulnerable to the vicissitudes of the market,” said Kathleen Sgamma, vice president of government and public affairs with the Western Energy Alliance, an industry group.
Still, others said it could signify an effort by the Obama administration to push development off federal lands.
“In the current price environment, it’s vast federal regulatory uncertainty that is adding to the cost of production and making federal lands more and more unappealing for industry to develop,” said Elise Daniel, a spokeswoman for the House Committee on Natural Resources. Committee leaders have been harshly critical of the administration’s handling of onshore oil and gas development. “The barrage of federal regulations is a major impediment and can make or break future energy development on federal lands.”
Claims that federal overreach and bureaucratic red tape are holding up drilling have become somewhat cliche on Capitol Hill, but a change in tone from the White House, combined with a bevy of looming regulations have caused industry concern to ratchet up recently.
On Thursday, the administration announced that it was pursuing new regulations to curb methane emissions from existing oil and natural gas sources, which combined with regulations set to be finalized by May on emissions from new and modified sources and existing operations on federal lands, would lead to new controls on potentially every US well.
While it remains unclear how much these rules will impact future US production, a lobbyist with the American Petroleum Institute said the costs would be “massive” while the Independent Petroleum Association of America said it would likely shut down “significant amounts” of US oil and gas production.
Along with the methane rules, US producers are also bracing for the potential costs of new federal rules on hydraulic fracturing on public lands, which have been temporarily suspended by a federal judge, and a trio of onshore orders. Those proposed BLM orders, known as Onshore Orders 3, 4 and 5, are aimed at updating federal regulations for the first time in decades, but are expected to hit operators with a number of new compliance costs.
“This administration has harmed production on federal lands by a number of actions,” said Neal Kirby, an IPAA spokesman.
Lease sales have been canceled and not rescheduled, it takes longer to receive permits to drill on federal lands than on state and private lands and uncertainty over regulations has forced many producers to scale back their plans to drill on federal lands, Kirby said.
“By the time an operator receives their permit to drill, the rules could have potentially become completely different,” he said.
Critics of the Obama administration’s impact on US production often point to how federal onshore production is making a smaller percentage of overall US supply. For example, in fiscal year 2010, federal onshore production made up 5.4% of the US total, but only 4.9% in fiscal 2014, according to the most recent data from the US Office of Natural Resources Revenue. But over that stretch, federal onshore production has grown from 295,000 b/d in fiscal 2010 to 406,200 b/d in fiscal 2014 as overall production jumped from 5.45 million b/d to 8.32 million b/d during that time.
Over this period, BLM has actually offered more acres for lease in sales, but received bids on a smaller number of acres. In 2009, for example, BLM offered just over 2.9 million acres and received bids on just over 1.02 million acres, or roughly 35%. In 2014, BLM offered more than 4.13 million acres, but received bids on less than 749,000 acres, or about 18%.
The Nevada auction this week was the third federal oil and gas lease sale in Nevada to not attract a single bid since June.
In response to both relatively declining interest in lease sales and onshore production that has not kept pace with US supply as a whole, BLM Director Neil Kornze said his agency was looking at some incentives to encourage production.
“Diligent development requirements include shorter primary lease terms, stricter enforcement of lease terms, and monetary incentives to get leases into production, for example, through a new per-acre fee on nonproducing leases,” Kornze said during a recent House hearing.
The specifics of that per-acre fee have yet to be determined, according to Amy Krause, a BLM spokeswoman who said such a fee was first proposed in President Barack Obama’s fiscal 2011 budget, but has yet to gain traction in Congress.
Krause said that BLM was not considering other production incentives while other sources said it is unlikely the fee will ever be adopted.
Sgamma said the fee was not an incentive, but rather a punishment for operators already faced with regulatory delays.
“Obviously at current commodity prices and with rig counts at historic lows, there is not much development on public or private lands,” Sgamma said. “If BLM pursued Director Kornze’s proposed policy to try to force producers to develop when it is not economical to do so, not only would that harm companies, but it would result in less return to the American taxpayer. It doesn’t make sense for the government to force development at a time of low prices, since the return to the federal government would not be maximized.”
Source: Platts
