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Oil, Gas Industry Stockpiled Drilling Leases Before Biden ‘Pause’

Jan. 28, 2021, 9:09 PM

A stockpile of federal oil and gas leases across an Ohio-sized swath of land in the West shows the fossil fuel industry was preparing for a leasing moratorium for years, former Interior Department officials say.

President Joe Biden imposed what he described as a “pause” on federal oil and gas leasing on Wednesday as part of his climate policy—while allowing millions of acres of existing leases to remain unaffected. Nevertheless, industry representatives and elected officials in the West lambasted the move, saying it’ll deprive Western states of much-needed income for basic state services.

But the industry’s “huge inventory” of undeveloped existing leases and drilling permits are evidence that the oil and gas industry anticipated a “pause” in leasing long ago, said John Leshy, a law professor at the University of California, Hastings and former Interior solicitor in the Clinton administration.

That “makes the ‘sky is falling’ rhetoric from the industry and its allies a bit over the top,” Leshy said Thursday. “Especially since many of the Trump-era lease offerings attracted no bids, or only minimum bids.”

Oil and gas production was occurring on less than half of the more than 26 million acres of land already under a federal lease by the end of fiscal 2019, according to the most recent federal Bureau of Land Management data, which doesn’t include millions of acres leased in the Trump administration’s final year.

Energy companies have the right to drill federal oil and gas leases for 10 years, and many of the leases sold over the last year were auctioned by the land bureau for as little as $2 per acre. The land bureau didn’t respond to a request for comment Thursday.

Can’t ‘Pick and Choose’

Companies can still act on the leases and drilling permits they’ve been aggressively accumulating over the last decade across the West before seeking more acreage, said Bob Abbey, an attorney who served as land bureau director during the Obama administration.

“There are oil and gas companies that have hundreds of previously issued permits to drill which have been issued over the years, but these companies have chosen not to drill on many of these permits, primarily due to economic reasons,” said Abbey, now with Abbey, Stubbs & Ford LLC.

There’s a good reason many stockpiled leases remain undeveloped: there may be no oil and gas to be found there, or companies discover that it’s not economically feasible to drill, said Angela Franklin, a partner at Holland and Hart LLP in Salt Lake City who represents industry clients.

“We don’t get to pick and choose where the oil is located,” she said, adding that there’s a “tremendous amount of acres that is not developed and may never be developed” because companies haven’t found oil or gas. It’s also possible companies have leases on too little land in one place to justify drilling there, she said.

Clear Message

Environmentalists don’t buy that rhetoric.

“I think the volume of acres and permits already not being used tells us their pace of drilling to date has not allowed the industry to use all the acreage and permits available,” said Nada Culver, senior policy counsel for the National Audubon Society.

“As a result, the industry is unlikely to experience some kind of immediate, devastating impact from the Executive Order,” she said.

But Franklin, the attorney, said the Biden administration’s message against the industry is clear. She said oil and gas companies fear the government will use denied rights-of-way and stalled environmental reviews for drilling permit applications to slow down or even stop development on existing legal leases.

“It’s going to be the attitude and what they can chip away at, and where they have the discretion to do so,” Franklin said.

Indeed, the land bureau may give drilling permit applications less priority amid its conservation and renewables agenda, said Jayni Foley Hein, natural resources director for the Institute for Policy Integrity at the New York University School of Law.

Legal Grounds

The Western Energy Alliance, a trade group representing fossil fuel companies operating on federal lands, filed a lawsuit against Biden’s order on Wednesday, saying it was an overreach.

But Hein countered that the order is legally sound and was “written very carefully to avoid legal risk.” “It smartly pauses all new leasing, which Interior can do pursuant to multiple laws, and leaves the door open to more permanent curtailment in the future,” she said.

The case is a long shot because the alliance will have to demonstrate that its members have been injured despite their stockpile of undeveloped leases, Leshy said.

“What is their injury from this temporary pause? Especially given the facts above about the depressed condition of the industry and its backlog of already issued leases and permit to drill?” Leshy said. “A lawsuit at this point is more theater than anything else.”

The Western Energy Alliance didn’t respond to a request for comment Thursday.

To contact the reporter on this story: Bobby Magill at bmagill@bloombergindustry.com

To contact the editors responsible for this story: Anna Yukhananov at ayukhananov@bloombergindustry.com; Rebecca Baker at rbaker@bloombergindustry.com

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