Energy companies stockpiling drilling permits across West

Scott Kidwell, a top executive for Concho Resources Inc., came to Capitol Hill in July to urge senators to pass a bipartisan bill to expedite drilling permits on public lands.

The Bureau of Land Management, he said, is taking 133 days to approve permits in southeast New Mexico's Permian Basin, where the Midland, Texas-based company operates, up from just 80 days in 2011.

BLM permitting times are increasing by the day as more companies home in on the oil-rich basin, threatening to crimp job creation and reduce royalty revenues in New Mexico, he said.

"The stakes at risk are enormous," Kidwell told the Energy and Natural Resources Committee.

But BLM data show that Concho already owns -- but has yet to use -- more than 150 drilling permits it received as far back as 2010 in southeast New Mexico's Eddy and Lea counties.


Concho is among hundreds of oil and gas companies that own, but haven't used, at least 5,810 drilling permits, most of which are located in New Mexico, Utah and Wyoming, according to a Greenwire review.

But those are just the permits BLM can readily identify in its electronic database. The numbers don't include all expired permits for which industry has requested an extension, or permits that are part of a lease suspension, BLM said.

BLM Director Neil Kornze said in July that roughly 7,000 permits remain idle, a sign that BLM is staying ahead of industry's permit demand.

"There's about two years of headroom available to industry," he told lawmakers. "We're very proud of providing that opportunity."

The Obama administration and its green allies have touted these idle permit figures for years, in large part to rebut industry criticism that BLM permitting delays are causing companies to flock to private -- and less regulated -- lands.

Federal land once accounted for 36 percent of U.S. natural gas production, but it now represents less than 16 percent as drillers sought more promising shale plays outside the federal estate, according to the U.S. Energy Information Administration.

But Greenwire's analysis is among the first to identify which companies own the idled permits and where they are located.

Industry officials warn that the data have limited relevance. Companies that operate on public lands face more red tape and must apply for their permits further ahead of drilling, they say. In addition, many permits aren't worth drilling, officials say, either because surrounding wells came up dry or because the low price of gas won't offer a return on their investment.

"Because of governmentwide inefficiencies, you have to have extra permits in hand in case you need them," said Kathleen Sgamma, vice president of government and public affairs at the Denver-based Western Energy Alliance, which includes many firms that warehouse permits.

But conservation groups say the idle permits undercut one of industry's top political talking points.

"The numbers simply don't support the claims that BLM isn't acting fast enough," said Steve Bloch, an attorney for the Southern Utah Wilderness Alliance. "If industry was serious about wanting to drill in Utah, they obviously have the wherewithal to bring crews and rigs into the state."

The idled permits, known as applications for permit to drill (APD), are spread throughout the West, but more than half are in popular drilling states including Utah, New Mexico and Wyoming. They appear concentrated in mineral-rich plays including New Mexico's Permian Basin, Utah's Uinta Basin and Colorado's Piceance Basin, among others.

Uintah County, Utah, had more unused permits than any other county, with at least 752. Next was Eddy County, with at least 530 permits. Other counties with at least 100 unused drilling permits included Duchesne and Carbon counties in Utah; Campbell, Johnson and Sublette counties in Wyoming; Lea County, N.M.; Rio Blanco County, Colo.; and Kern County, Calif., according to the BLM data.

Roughly half of all unused permits are owned by 10 companies.

Texas-based Anadarko Petroleum Corp. and its Kerr-McGee subsidiary own just under 900 unused drilling permits, more than twice as many as any other company, according to the BLM data.

At least 440 of those permits are located in Uintah, where Anadarko in May 2012 was approved by BLM to drill up to 3,675 gas wells as part of its Greater Natural Buttes project. The project was praised by environmental groups for steps to limit air pollution and conserve wilderness-quality lands (Greenwire, May 8, 2012).

The locations of Anadarko's idled permits are unclear. A company spokesman declined to comment for this story.

In addition, Devon Energy Corp., Yates Petroleum Corp. and Newfield Exploration Co. each own at least 300 unused drilling permits, while QEP Resources Inc., Encana Corp., Bill Barrett Corp. and WPX Energy Inc. each hold more than 200 unused permits.

'Idle rigs are extremely costly'

The BLM data were pulled Aug. 15 and represent a snapshot in time. It is possible that some of the APDs have now been used, or that more idle APDs have been added to the list.

K Leonard, a spokeswoman for EOG Resources Inc., which has 175 unused permits, said the low price of natural gas is a major reason permits are going unused. Many of the company's APDs were issued in areas where only natural gas is found.

The Houston-based company owns several dozen unused permits in Wyoming's Campbell County, where drilling companies have recently turned their attention to more lucrative oil locked in the Powder River Basin. The new demand drove drilling permits up nearly 27 percent to 916 APDs in Campbell last year, according to the Wyoming State Geological Survey.

EOG typically acquires permits across the entire area it thinks is prospective, but it may not drill all its APDs due to economics, Leonard said.

"Each new well provides a new data point as to whether or not the geologic formation will provide an economic return," Leonard said. "So any one well may cause us to move in a different direction than originally planned."

And because of the long lead time to obtain BLM permits -- typically several times longer than state drilling permits -- companies often stockpile APDs to ensure that rigs will keep running.

"Idle rigs are extremely costly," Sgamma wrote to the Senate Energy and Natural Resources Committee in an Aug. 18 letter that responded to questions from the panel. "Because producers have no certainty on how long it will take to get a BLM APD approved, they must submit many more APDs in advance than they may actually use."

Sgamma said companies rarely stockpile permits on nonfederal lands because state permits are reliably issued in about a month.

Even though there's a "glut" of natural gas and, in many cases, little economic incentive to drill, companies tend to keep their federal permits until they expire, since they cost $6,500 each, Sgamma said.

Some believe prices will eventually rebound in the Rocky Mountains, particularly if the proposed Jordan Cove terminal in Oregon is built to export liquefied natural gas. The Energy Department in March issued conditional approval for the terminal to export 0.8 billion standard cubic feet per day of natural gas, for a period of 20 years (Greenwire, March 24). Some of that gas could come from the Ruby Pipeline that begins in southwestern Wyoming.

But conservationists argue that industry must first develop the permits and leases it owns before expanding its footprint on public lands.

A new analysis released this month by the Wilderness Society accuses industry of "hoarding" drilling permits and only developing about one-third of the 36 million acres of lands it has under lease.

The analysis found that BLM's resource management plans have kept 90 percent of its 250-million-acre estate open to leasing.

"This industry needs to value the lands more," said Nada Culver, senior counsel for TWS in Denver. "The scale of this is so out of proportion."

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