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‘Pause’ on oil and gas leases riles industry

(Jim Thompson/Albuquerque Journal file)

Copyright © 2021 Albuquerque Journal

President Joe Biden charged into a direct confrontation with the oil and gas industry Wednesday with an executive order to indefinitely “pause” all new leasing activity on federal lands.

The lease ban is just one element in a broad range of actions contained in Biden’s order, which outlines aggressive federal efforts to tackle climate change. But industry leaders pounced on the leasing issue as a potentially devastating blow to domestic oil and gas production that could constitute the opening salvo in a string of new restrictive regulations to come.

“While this move suspends new leasing, this decision appears to be a first step toward an end goal of stopping natural gas and oil development on federal lands and waters,” American Petroleum Institute president and CEO Mike Sommers told reporters in a national press call Wednesday morning.

Leaders from four states participated in the call, including New Mexico Oil and Gas Association Executive Director Ryan Flynn, who said New Mexico will be hit harder than any other state because of the high level of production on federal lands here.

“New Mexico accounts for 57% of all federal onshore oil production and 31% of all onshore natural gas production in the country,” Flynn said. “… Nearly one-third of our state’s budget comes directly from oil and gas revenue, and of that one-third, approximately $1 billion, comes from revenue generated on federal public lands.”

Environmental groups, however, praised Biden’s order as a critical first step to begin reeling in greenhouse gas emissions from oil and gas operations while simultaneously designing new policies to protect public lands, potentially reorienting their use toward environmentally friendly economic development such as outdoor recreation and renewable electric generation.

They also questioned the real impact on industry activities, at least in the short term, because many oil and gas companies have already stockpiled a huge inventory of federal land leases and permits to drill in New Mexico and elsewhere.

“A temporary pause on leasing will have no short-term effect on the oil industry,” Aaron Weiss, deputy director of the Colorado-based conservation group Center for Western Priorities, told the Journal. “They’re sitting on tens of thousands of leases now, plus some 10,000 already-approved permits to drill.”

Systemic review

Biden’s order directs the U.S. Department of the Interior to use the pause to launch a “rigorous review” of all existing leasing and permitting practices. It doesn’t affect new permitting for leases already approved by the Bureau of Land Management — the Interior agency that manages federal lands through field offices around the country — nor any existing oil and gas activity on federal lands. But it’s unclear whether the leasing pause will end or under what new regulatory framework leasing would resume in the future, which creates widespread uncertainty in the industry.

And Wednesday’s presidential order comes on top of a separate order last week by acting Interior Secretary Scott de la Vega to suspend authorization of all new drilling permits by BLM field offices for 60 days, until Biden-nominated leaders get Senate confirmation to take their posts. That includes Rep. Deb Haaland, D-N.M., whom Biden appointed to head the Interior Department.

Industry impact

In recent years, industry has stockpiled a huge number of federal land leases and drilling permits that can keep current operator activity going for years to come, with or without new BLM approval of leases or permits, according to global industry consultant Rystad Energy.

That’s particularly true in the Permian Basin in southeastern New Mexico, where many companies rushed to secure drilling permits last year on already-leased federal lands. Now, operators there have accumulated enough BLM authorizations to maintain existing activity levels for at least three years, according to Rystad.

But even with leases and permits in hand, drilling-related operations will be hindered by the Interior Department’s 60-day permitting suspension, Flynn said. That’s because operators frequently request minor permit modifications once they begin work on a new well, as well as right-of-way authorization to transport oil, gas and water for operations.

Under the 60-day moratorium, BLM field offices can’t now process those requests.

“Those are routine BLM authorizations from field offices that are now frozen for 60 days,” Flynn said.

And although the Interior permitting suspension is temporary, the pause on new leasing is indefinite. Industry is now highly concerned about forthcoming regulations that could emerge from Interior’s leasing and permitting review ordered by Biden.

The government could decide not to reopen new leasing on federal land. If so, it would likely have little effect on onshore drilling, said Raoul LeBlanc, IHS Markit’s vice president for nonconventional oil and gas. That’s because about 97.5% of federal lands available for oil and gas operations is already leased out.

In contrast, if the government opts to ban new permits for drilling, it would significantly affect production and revenue, although most current and planned activity in New Mexico would still continue over the next decade under land leases and permits already approved by BLM, LeBlanc said.

However, if the government were to ban new drilling on federal lands, that could be devastating for local industry.

“In that case, production would fall substantially almost immediately,” LeBlanc said. “After five years, it would be down 80% or more.”

Environmental view

Still, environmentalists say a thorough review of federal policies on leasing and permitting is long overdue, especially after four years of accelerated oil and gas development under former President Donald Trump.

The Center for Western Priorities called for more stringent environmental regulations to protect public lands in a new report released this week. The report supports more public input on BLM leasing decisions, higher lease-bidding and rental fees, an increase in royalty rates paid by leaseholders, and more bonding requirements on companies to clean up abandoned wells.

“It’s important that both Congress and the Biden administration use this leasing pause to completely overhaul a broken and rigged system that has benefited the industry for many years,” Weiss told the Journal. “New policies must take into account the carbon costs and environmental degradation from oil and gas produced on federal lands.”

Gov. Michelle Lujan Grisham said she supports Biden’s efforts to review federal policies. But she’ll push for a “balanced” approach that includes working with industry to implement new regulations.

“It is essential that climate change be prioritized,” Lujan Grisham said in a statement. “In the interest of developing new, more sustainable federal-and-state climate policy that is so urgently needed to protect our planet, a review of all climate-related policies, including energy policies, will ensure we do the right thing — across the country and here in New Mexico.”

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