The oil and gas industry has roundly criticized the Obama administration for leasing less public land for drilling than its predecessor. But federal land records hint at an explanation drillers aren't mentioning: Companies themselves are asking for a lot less land.
Exploration and production firms asked federal officials for about half as much territory in 2009 as they did in 2008, a Greenwire analysis reveals. The falloff occurred as the economy soured, the price of gas fell, and the industry's interest shifted away from the Rocky Mountain West.
"They can complain to high heaven that they're not getting as many leases," said Dave Alberswerth a former Clinton administration Interior official now with the Wilderness Society. "But the fact is that they're not asking for as many."
But petroleum industry officials say the Obama administration's hostility to domestic energy production is one of the top reasons companies are turning away from public lands. What's the point, they ask, in fighting through an increasingly complex bureaucracy?
"You have no certainty that you're going to get a lease that you've paid for," said Kathleen Sgamma, director of governmental affairs at the Independent Petroleum Association of Mountain States (IPAMS). "Why would you want to tie up your capital?"
Other observers say you can't rule out economics or politics as the cause of the change.
"At the end of the day, price and economic factors are driving this," said David Bernhardt, the Interior Department's top lawyer during the George W. Bush administration, now with the Washington office of Brownstein Hyatt Farber Schreck. "But these public policy factors don't help."
Industry groups have repeatedly complained in recent months that the number of federal acres leased for exploration and production has dwindled under President Obama and his Interior secretary, Ken Salazar.
IPAMS issued a report last November saying the administration had "severely" curtailed leasing (Land Letter, Nov. 19, 2009). And the Institute for Energy Research said that, after accounting for 77,055 acres deferred in Utah, "fewer onshore acres were leased in 2009 than in any year on record" (E&ENews PM, Nov. 24, 2009).
Those critics have blamed Obama's policies, and have not cited a drop in demand. But Bureau of Land Management figures compiled by Greenwire indicate that requests in the top four petroleum-producing BLM states were down from 3.6 million in 2008 to a little more than 2 million acres last year, a 45 percent decrease.
On average, companies sought an average of 3.7 million acres a year from 2006 to 2008 in the four top-producing BLM states: Colorado, New Mexico, Utah and Wyoming. In 2009, the number of acres "nominated," or requested by industry, fell in each of the states except New Mexico.
How federal leasing works
In the federal leasing process, oil and gas companies nominate land to the BLM, which vets them for environmental and other concerns, then puts them up for lease in regularly scheduled public auctions.
The number of acres nominated isn't tracked nationally. To compile the figures, Greenwire contacted BLM state offices individually. BLM officials, particularly in Colorado, stressed that the numbers themselves are imperfect because some parcels are nominated more than once, and some companies nominate acreage that doesn't belong to the federal government. Montana officials said they were unable to provide such figures.
But even in Colorado, officials said they had seen a steep drop in interest in leasing federal land. The number of drilling permits on Colorado BLM land fell from 684 in 2008 to 473 last year. Across the West, the number of permits hit an all-time high of 7,124 in 2007 but fell to 4,487 last year.
The permit records, which date to 1988 and go by federal fiscal year rather than calendar year, don't list how many permits were sought by industry, only the number approved.
The amount of land companies were able to lease for exploration and production fell 55 percent in 2009, according to BLM statistics, from 1.6 million acres to about 700,000.
For its part, BLM says demand for acreage is driven by the price of gas more than any change in its procedures and environmental policies.
"Economic factors are contributing to any decrease in industry interest," BLM spokesman Matt Spangler said. "That would include the price of natural gas and both pipeline and natural gas storage reaching capacity."
'Geography has shifted'
Analysts say the reason the industry is cutting back on requests is because the price of gas has been cut in half in the past two years from around $8 per million British thermal units to about $4/MMBtu. The recession has slowed demand as a glut of supply looms from a flock of new liquefied natural gas terminals and new oil and gas finds in shale formations under private land in Texas, North Dakota and Pennsylvania.
"The geography has shifted," said Larry Makovich, vice president at the consulting firm IHS Cambridge Energy Research Associates. "There is a pretty interesting change in the profile of where gas is coming from."
But companies and industry groups complain that Salazar's withdrawal of 77 Utah leases sold in December 2008 and the increased environmental reviews he announced in January are signaling a hostility to domestic production (Greenwire, Jan. 6). They say the uncertainty is driving companies away from federal lands to the private shale lands.
"Over the past year, rig counts are up in the United States, there's been a flurry of activity on private and state-owned lands in Pennsylvania and other states, yet leasing on federal lands out West is on a downturn," said Patrick Creighton of the Institute for Energy Research. "This downturn undoubtedly is attributed, at least in part, to the lack of certainty and red tape business has to navigate at the Interior Department."
Critics say roadblocks to development set up by Obama administration hinder efforts to make the United States energy independent.
"Reducing acreage leased for oil and natural gas development by 75 percent as occurred in 2009 will not put America on a path of preparing for its real energy future," American Petroleum Institute President Jack Gerard said in a January speech at the National Press Club that mocked congressional efforts to pass a cap-and-trade bill to limit greenhouse gas emissions.
"Canceling leases, delaying lease sales, delaying environmental studies, holding back the next OCS [outer continental shelf] five-year plan, and adding layers of bureaucracy and new procedures will not ensure Americans have ample supplies of the oil and the natural gas that every projection shows they will be demanding in the near future," Gerard said.
Shortly before the speech, API reported that under the Obama administration revenues from federal onshore oil and gas leasing in the five states that make up the Intermountain West (Colorado, Montana, New Mexico, Utah and Wyoming) have plummeted over 80 percent, the amount of total acreage leased by the government shrunk to the lowest level on record, and in Wyoming alone, the number of leased acres fell nearly 70 percent from 2008 to 2009.
But a Wilderness Society issued a report in February that asserted the amount of drilling on public lands has risen and fallen with the price of natural gas, no matter which party controlled the White House or Congress (Greenwire, Feb. 23).
Offshore projects boosting U.S. production
In fiscal 2009, the Obama administration issued 2,072 leases, which was down from 2,416 leases in the last year of the Bush administration. That was down from a Bush administration high of 3,985 in fiscal 2006.
BLM figures show that the George W. Bush administration issued fewer leases in its first year -- 3,289 -- than the 4,040 leases the Clinton administration did in its first year.
The Wilderness Society report cited industry executives, such as those at Questar, who had told investors in they were scaling back in 2009 because of the economy. The report also criticized industry for demanding more public land even though two-thirds of the 45 million acres it already holds is not in production.
Rep. Ed Markey (D-Mass.) said recently he will soon reintroduce "use it or lose it" legislation that was Democratic leaders' response to the 2008 spike in gas prices (Greenwire, March 31).
The falloff in drilling on public lands isn't heralding decreased overall domestic oil production. An industry intelligence firm reported late last year that the U.S. petroleum industry was ending 2009 with its biggest one-year boost in domestic oil production in 40 years (Greenwire, Nov. 30, 2009).
Analysts attributed the surge to new deepwater projects in the Gulf of Mexico and the increased prominence of North Dakota's Bakken shale field, where the land and oil are primarily in private hands.