President Joe Biden’s one-year moratorium on new leases for fossil fuel extraction from federal lands and waters will have a minimal, short-term impact on oil and gas companies that long anticipated such a move.
But if the ban on new leases were extended over Biden’s presidency, as analysts widely believe could happen, it would have a profound effect on oil and gas companies, particularly shale drillers in the Permian Basin and offshore producers in the Gulf of Mexico.
“If it’s only a one-year moratorium, it’s going to have a negligible effect,” said Tom Kellock, director of offshore-rig market consulting for IHS Markit. “But if it’s long-term, it’s one more nail in the coffin for the oil and gas business.”
The oil and gas industry, already battered by the pandemic’s economic downturn, faces increasing regulations under the Biden administration, which has made addressing climate change a priority. The president in his first week in office issued a flurry of executive actions to fulfill campaign promises, including a 60-day review of new drilling permits on federal lands and a call to eliminate tax incentives for the oil and gas industry.
Oil and gas companies for months have been preparing for these moves, amassing a large inventory of permits and leases on federal property under the previous administration. Analysts estimate that onshore oil and gas companies have between three and five years worth of approved drilling permits, lasting through the end of Biden’s first term. Offshore producers have between one and three years of approved permits in the Gulf of Mexico. Biden’s executive orders do not affect existing permits or leases, nor those on state and private property.
Biden's executive orders are likely to face legal challenges from the oil and gas industry. Both federal law and Bureau of Land Management which oversees federal territories mandate regular lease sales. A permanent ban on leasing appears to require an act of Congress.
Analysts said they expect federal drilling permits to resume after the 60-day review, because oil and gas produces much of the tax revenue in key Democratic states like New Mexico and because a permanent ban on drilling permits would face greater legal challenges. Taxes and royalties from oil and gas account for a third of New Mexico’s annual budget, including almost $1.4 billion for public schools.
Biden, however, has little reason politically to lift a ban on new federal leases, and analysts expect he will try to extend the one-year moratorium or raise prices for federal leases. Depending on whether a potential lease ban lasts for one or two presidential terms, U.S. oil production from the Gulf of Mexico could decline by 175,000 to 200,000 barrels per day by 2030, and by as much as 400,000 barrels per day by 2040, according to Rystad, a Norwegian energy research firm.
Falling oil and gas production would have a sweeping impact on industry jobs, trade groups said.
A ban on drilling on federal lands and waters could cost the oil and gas industry up to 1 million jobs nationally by 2022, including 120,000 jobs in Texas, according to research from the American Petroleum Institute, an oil and gas trade group.
The National Ocean Industries Association, an offshore oil and gas and wind energy trade group, forecasts that the number of offshore jobs based in Texas could decline to 39,000 by 2040, down from 147,000 in 2019, if the ban on drilling permits in the Gulf of Mexico were made permanent.
“If the lease ban gets expanded to a permanent drilling ban, we will see a natural decline in the Gulf of Mexico as soon as operators work through the existing inventory,” said Artem Abramov, Rystad’s head of shale research. “We are of course talking about billions of dollars in lost revenues for service companies in the Gulf of Mexico in the long term if the new lease rounds never happen again.”
The leaseholders
About a quarter of U.S. crude oil is produced on federal property, including 1.2 million barrels a day from federal lands and about 1.6 million barrels a day from federal waters in the Gulf of Mexico. The U.S. produced about 11 million barrels of crude a day during the fourth quarter, most from private and state lands. Texas has very little federal land, but many oil and gas companies headquartered in Texas operate on federal lands and waters.
Occidental Petroleum, EOG Resources, Exxon Mobil, Chevron and Devon Energy have the most acreage on federal lands, particularly on the New Mexico side of the prolific Permian Basin that stretches into West Texas.
Many oil and gas companies in recent years have flocked to the Delaware Basin in New Mexico where most companies can break even with crude around $35 a barrel. Federal land constitutes about 60 percent of the Delaware Basin in New Mexico.
In this Jan. 25, 2021, file photo, President Joe Biden answers questions from reporters in the South Court Auditorium on the White House complex, in Washington.
Evan Vucci/APDevon Energy, which acquired rival WPX Energy this month, has one of the highest exposures to an executive order regarding drilling on federal lands. About a third of the Oklahoma City-based company’s leases are on federal land. It has about 400,000 acres in the Delaware Basin, including about 140,000 acres on federal land.
A company spokeswoman declined to comment specifically on Biden’s executive orders, but said the company estimates that it has about 650 approved federal permits, representing more than four years of drilling activity at current production rates.
If Biden extends his ban on new oil and gas leases, shale production would likely shift to the Texas side of the Delaware Basin and the Midland Basin in West Texas, Abramov said.
In hot water
Offshore oil and gas companies will be hardest hit if Biden extends his ban on new oil and gas leases and permits. That’s because nearly all of U.S. offshore oil and gas operations are in federal waters.
The lack of new oil and gas leases in the Gulf of Mexico will likely hasten the production decline in the mature oil field, Rystad said. Oil production from the Gulf of Mexico will likely fall by 10 to 15 percent annually if permitting is banned.
Shell, BP, Chevron, Oxy, Murphy and Hess are responsible for about 75 percent of the oil produced in the Gulf of Mexico.
Oil majors BP and Shell, two of the largest oil producers in the Gulf of Mexico with almost 40 percent of the market, have already begun shifting their business toward renewables, using revenues from the Gulf of Mexico production to fund their energy transition. Other companies, such as Chevron, Exxon and Oxy, have diverted capital from Gulf of Mexico offshore production to onshore shale production.
“The Gulf of Mexico is already quite mature and many companies already realize there’s only a certain number of years left for proper development there,” Abramov said.
Small oil and gas companies and oil-field services companies will feel the greatest pain from Biden’s executive orders. Eliminating tax incentives and raising corporate tax rates would increase the cost of development, squeezing smaller producers.
“There will be an additional cost burden on companies,” Abramov said. “It will make life more difficult for these companies.”
Analysts warned more actions may be announced as the Biden administration pushes to meet emissions targets set by the Paris climate agreement.
“It’s important to consider the pace at which regulatory changes have arrived,” said Ryan Duman, research director with Wood MacKenzie. “Expect to continue hearing more, particularly around stricter air and water regulations.”
paul.takahashi@chron.com
twitter.com/paultakahashi
"oil" - Google News
January 29, 2021 at 09:31PM
https://ift.tt/3al9EaS
Biden's ban on oil and gas leases could be the 'nail in the coffin' for Houston's economic engine - Houston Chronicle
"oil" - Google News
https://ift.tt/2PqPpxF
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
Bagikan Berita Ini
0 Response to "Biden's ban on oil and gas leases could be the 'nail in the coffin' for Houston's economic engine - Houston Chronicle"
Post a Comment