On March 3rd, White House Press Secretary Jen Psaki, in response to a question about increasing domestic oil production, attempted to shift blame to oil companies by citing “9,000 approved oil leases that the oil companies are not tapping into currently.” In subsequent press conferences, she adjusted that to 9,000 permits and went on a Twitter storm to shift blame.
While we may not appreciate the cynical attempt to deny the effects of the president’s own “no federal oil” policies, we appreciate the White House is suddenly messaging to “encourage” us to produce. When my tweet was picked up by a Fox News White House correspondent, it garnered more attention than usual, leading environmental groups to jump in and pound on the 9,000 approved APDs outstanding.
As federal oil and natural gas is a highly complex system and with only 280 characters available in Twitter, let me take this opportunity to provide some insight into the numbers and the “myriad other delays the administration puts in the way of American producers.”
First the 9,000 leases that Psaki cited. There are about 37,496 leases in effect. Assuming her number is correct on nonproducing leases (FY 2021 data are not yet available from the government, even five months after the FY ended), 76% is a very high lease utilization rate. Why aren’t we developing those “9,000 leases”?
- Before allowing development on leases, the government conducts environmental analysis under NEPA (the National Environmental Policy Act), which often takes years to complete. Many leases can be hung up in that process or awaiting other government approvals.
- Finally, not all leases will be developed because, after conducting exploratory work, a company may determine there are not sufficient quantities of oil and natural gas on them. The country still benefits from the leasing revenue paid on the leases.
- Let’s talk permits. There are 4,621 permits to drill awaiting approval. By approving these permits in a timely manner, companies could move forward with development. There are also about 9,173 outstanding approved permits, but there are factors that cause companies to wait to drill those wells.
- Because of the uncertainty of operating on federal lands, companies must build up a sufficient inventory of permits before rigs can be contracted to ensure the permits stay ahead of the rigs. We drill wells in a matter of days and rigs are very expensive, so it’s a delicate balancing act. But there are other things that can delay a company from developing a well right away.
- The federal permit to drill is not the only government approval required. Rights of way (ROW) must be acquired to access the lease and for natural gas gathering systems. ROWs can take years to acquire. With the pressure not to flare from regulators and investors, most companies cannot drill before the gathering lines are in place. Timely approvals of ROWs would enable companies to develop sooner.
- The administration has worked with anti-oil-and-gas activists to slow pipeline infrastructure. Without pipelines to move the oil and natural gas produced, wells cannot be developed.
- Capital must be acquired. Activist investors, encouraged by an administration intent on expanding its financial regulatory powers, have worked to de-bank and de-capitalize the industry. Many companies, particularly the small independents who drill the majority of federal wells, are having difficulty acquiring the credit and capital necessary to develop. By calling off bureaucratic efforts to deny financing to the industry, the president would send a strong signal to the market that investments in oil and natural gas are safe and new production could move forward.
- The Biden Administration has embarked on an agenda of regulatory overreach with extensive new regulations in the works. The uncertainty of all the new red tape puts a damper on new investment and development today, especially on federal lands where the burden is highest. Consequently, companies prioritize their nonfederal leases because there’s less regulatory risk.
These are just some of the political and bureaucratic obstacles this administration is engaging in to slow American production. Please see my op-eds in the Washington Examiner and The Hill for ideas on how the president could encourage American oil and natural gas production rather than just try to shift the blame.