Companies Stockpile Oil and Gas Permits, but Still Complain about Permitting on Public Lands

Oct 31, 2014

By Center for Western Priorities

A new analysis by Phil Taylor in Greenwire reconfirms a long-established and concerning trend on our national public lands: oil and gas companies are stockpiling thousands of drilling permits, holding onto them until energy prices increase in order to increase their own profits. Meanwhile, these same companies are publicly complaining that the federal government isn’t leasing public lands for drilling fast enough.

According to Taylor’s story, this hypocrisy was on display over the summer, when a top executive from Concho Resources visited Capitol Hill to complain about permitting delays in southern New Mexico. But his company holds more than 150 unused drilling permits in that part of the state, some dating back nearly five years.

Concho Resources is certainly not alone. Oil and gas companies have stockpiled nearly 6,000 unused drilling permits on national public lands across the West. Anadarko Petroleum, for example, is holding onto almost 900 undrilled permits; Devon Energy is holding 375 idled permits.

Companies Holding the Most Unused Public Lands Drilling Permits

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(Source: Greenwire)

What’s the explanation for why companies are waiting to drill thousands of permits? A primary reason is economics and geography: economics are driving companies away from natural gas and towards oil. Additionally, most of today’s best oil plays lie under private lands, not public lands.

Today’s best oil plays lie under private lands, not public lands

National public lands have significant reserves of natural gas, but by a coincidence of geography only a very small percentage of the highest value oil resources lie beneath Western public lands.

Rather, the large majority of unconventional oil resources that companies are currently pursuing (i.e. shale oil and liquids) lie beneath private and other nonfederal lands.

Economics are driving companies away from natural gas and towards oil

In 2008, the price for natural gas plummeted from $12 per million BTUs to below $4 per million BTUs and has remained low ever since. Crude oil prices, on the other hand, have remained high, fluctuating between $80 per barrel and $100 per barrel for much of the last five years.

As a result of price, companies that had been drilling for natural gas under public lands have refocused their sights on more profitable oil and valuable liquid plays, like those found in eastern Colorado, North Dakota, and southern New Mexico.

Take Pioneer Natural Resources as an example. In a 2012 report to investors, the company noted:

“[Our] 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.”

Put differently, companies are holding onto natural gas leases—waiting for prices to increase and drilling to become profitable—as they continue investing in more profitable areas with oil and liquids. Thousands of unused, idled drilling permits on our public lands is what this looks like on the ground in the West.

Companies have a strong business incentive to convince lawmakers to continue loosening restrictions on public lands drilling, as the Concho Resources executive was lobbying for this summer. But, as the recent piece in Greenwire shows, there’s an overwhelming body of evidence to show that companies like Concho have little issue gaining access to public lands for development.