US shale producers race for federal permits
Oil producers in the top U.S. shale fields are stockpiling drilling permits on federal land ahead of the November U.S. presidential election, concerned that a win by Democratic candidate Joe Biden could lead to a clamp-down on oilfield activity. Federal permitting in the largest US oilfield in the Permian Basin, located in Texas and New Mexico, is up 80% in about the last three months, which analysts attribute to a hedge against a win by Biden, who currently leads US President Donald Trump by several points in national polling. Biden has stated that he does not want to ban fracking outright, putting him at odds with many environmentalists and Democratic party activists.
However, his climate plan includes banning new oil and gas permits on public lands, which industry groups say would hurt the economy and cut off an energy boom that has made the United States the world's largest crude oil producer. The shale revolution of recent years boosted U.S. crude output to roughly 12 million barrels per day (bpd) last year through hydraulic fracturing, or fracking, which is environmentally controversial as it involves pumping water, sand and chemicals into rock at high pressure to release oil or natural gas.
As of Aug. 24, producers have received 974 permits so far this year for new wells on federal land in the Permian, compared with 1,068 for all of last year and 265 in 2018, according to data firm
Enverus. In the 90 days up till Aug. 24, producers received 404 permits in the Permian, compared with 225 and 11 in the same period in 2019 and 2018, respectively. The scramble for permits comes despite the weak outlook for oil drilling and prices due to the ongoing coronavirus pandemic.
Crude prices LCOc1 plunged in spring following the outbreak and have remained stuck near $40 a barrel. The number of oil and gas rigs drilling new wells in the United States hit record lows for 15 weeks and last week was 71% lower year-on-year, according to Baker Hughes data, and analysts do not expect a sharp rebound for some time.
Uncertainty about a ban and other possible regulatory changes, including a proposal to modify royalties to account for climate costs, mean more permits will be filed ahead of the election, said Bernadette Johnson, vice president at Enverus. The industry has raced to file for permits before ahead of potential regulatory changes.
In Colorado in 2018, as voters considered a proposition to increase the distance required between new wells and buildings, permitting jumped 165% in the last six months of the year compared with the first half, according to Enverus. At least nine producers stockpiled more than two years' worth of permits. EOG Resources Inc, Cimarex Energy Co, Matador Resources Co and Devon Energy Corp are among the shale producers who have said they expect to have years of drilling permits.
Devon is "proactively managing risks" by stockpiling more than 550 federal permits in New Mexico and Wyoming, Chief Executive Officer Dave Hager told analysts this month. Most producers have "a runway of 12 to 18 months" in permits in the Permian and Wyoming's Powder River Basin, said Jake Roberts at energy investment bank Tudor, Pickering, Holt & Co.
Federal permits are for two years and can be extended another two, but there is no guarantee that routine permit extensions would continue in the future, Cimarex CEO Tom Jorden said on an earnings call in August. US oil production remains below 2019's peak and analysts expect it will be slow to recover in the coming year, as shale production depends on new investment due to the short life of the wells drilled.