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Low natural gas prices, geology have shifted drilling to nonfederal lands

Natural Resources Committee hearing likely to favor rhetoric over fact

Denver – The U.S. House of Representatives’ Natural Resources Committee is meeting today to discuss the movement of oil and gas production from federal to nonfederal lands. If past is prologue, a majority of committee members will ignore the market and geological realities behind the shift, and instead use the hearing to score political points against the Obama Administration.

The recent Follow the Oil report by the Center for Western Priorities documents the real reasons behind the shift. A collapse in natural gas prices has led companies away from natural gas, which is found on federal lands in the West, and toward shale oil, which happens to be located almost exclusively on private lands.  A number of experts have echoed these findings.

“Oil and gas companies willingly explain to their investors and stockholders that they’re moving to nonfederal lands because that’s where the most profitable shale oil happens to be. But the story changes when it comes time to discuss the move in a political setting,” said Center for Western Priorities Policy Director Greg Zimmerman. “However, the facts don’t change. The collapse in natural gas prices, which the oil and gas industry itself created through oversupply, is what is pushing drilling to private lands.”

Excerpts from Follow the Oil (Read the full report):

  • A combination of low natural gas prices and new shale extraction techniques inspired industry to look toward a more profitable commodity: shale oil. As a result, oil and gas companies moved their operations to areas where shale oil is abundant and offers the greatest potential profit.
  • 93 percent of shale oil and mixed oil and gas plays in the lower 48 states are located under nonfederal lands, a majority of which are privately owned. Even in the Rocky Mountain West, where large amounts of the federal lands are located, 89 percent of shale oil and mixed oil and gas plays underlie nonfederal lands.
  • Market forces have driven the price of natural gas down to around $3.30 per thousand cubic feet – or approximately half its 2006 price. Meanwhile, oil prices have soared, increasing 44 percent in the same period, growing from $66 in 2006 to $95 per barrel in early 2013.
  • The Denver-based Pioneer Natural Resources explained to investors in a third quarter 2012 statement that its “drilling program continues to focus on liquids-rich drilling, with only 10% of the wells designated to hold strategic dry gas acreage in response to the current low gas price environment.”

Media and expert coverage of Follow the Oil

  • “The vast bulk of federal land is located west of the Rockies, but the great majority of the U.S. shale resource is located east of the Continental Divide. Even in California, where federal lands cover a large part of the state, they don’t overlap much with the shale resource; that remains true even if you look at more expansive definitions of that resource than the new study uses.” – Michael Levi. “The Shale Boom Won’t Be Repeated on Federal Lands.” Council on Foreign Relations. March 8, 2013.
  • “When Willie Sutton was asked why he robbed banks, he replied, or at least is said to have replied: ‘Because that’s where the money is’… And so it is with oil and gas, operators are drilling where the money is and that the Center for Western Priorities says just happens to be on land not overseen by federal agencies.” – Mark Jaffe. “US oil and gas drilling moving to private land where the shale is.” Denver Post. March 7, 2013.

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