Study: Federal oil and gas leases in sharp decline

Oil industry says no moratorium needed

By: - February 5, 2021 5:46 pm

Natural Gas Oil Rig Equipment Search Drilling Rig (Photo by Max Pixel, used by Creative Commons license).

A new report by Rocky Mountain Wild, a nonprofit group aimed at protecting wild animals and wild lands, shows that federal oil and gas leasing has declined sharply in the Mountain West, and that the effects of President Joseph Biden’s energy policies may not hurt as much as opponents say.

However, petroleum industry experts say the decline, driven by low oil prices, is exactly the reason a federal moratorium is not needed.

The report counted nearly 20 million acres of leased federal land in the West, with more than half of that land not being developed despite much of it having “moderate to high potential” for energy development.

Specifically, Montana has 1.5 million acres leased with 1 million of those not developed. Rocky Mountain Wild estimates that 671,000 acres of leased land has potential that the Department of the Interior classifies as “moderate to high potential” for oil and gas development.

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In 2019, 86,000 acres of leases were sold. By 2020, that number had dropped to less than 17,000 acres, the report said. That trend follows the trends of other Mountain West states, mostly.

Companies have 10 years from the time the lease is awarded to develop the mineral rights. If nothing is done, the leased land is turned back to the federal government. If a well is developed on the site, the mineral rights continue for as long as it is in production.

“If the number of leases is dropping so dramatically, why would we want a federal moratorium on what is already happening naturally?” said Alan Olson, chief executive of the Montana Petroleum Association.

He attributes the reduced interest in federal leasing to several factors, chief among them low oil prices. He said that other factors, such as the location of federal lands and the complex process of developing the resources on government-owned land, also inhibits the demand.

“The leases in Montana bring in about $29 million for a state of 1 million people. That’s not too bad,” Olson said. “(Montana) stands to lose considerably more than that, though.”

Rocky Mountain Wild said the purpose of the report was to add data to the discussion. As soon as Democrat Biden announced the policy changes, petroleum associations and energy companies were quick to decry the actions, saying the moves would hurt western states like Montana and Wyoming.

“The industry is going to fight against anything that would stand in the way of its future, even if it’s not a big impact,” said Alison Gallensky, the GIS director of Rocky Mountain Wild.

She said the pause on new leases is temporary until the administration’s policy is clearer. Furthermore, energy companies have plenty of current leases to continue production, she said.

Gallensky said the impacts in Montana are not as drastic as in other states like Wyoming and New Mexico, which rely more heavily on oil.

“Montana has a more diverse economy,” Gallensky said. “However, they’re going to be more interested if the price goes up again.”

Olson said just looking at the number of acres or the price per acre doesn’t give a full, complete picture. Instead, he said that jobs from new productive wells add hugely to the construction economy, and a productive oil well puts money in the state coffers for years.

Rocky Mountain Wild also wants to see federal government get a better return for its lease prices instead of $2 per acre. She said while the taxpayers benefit from the leases, the land is usually tied up so that little else can be done it.

“That couldn’t be farther from the truth,” Olson said.

He said the leases are only for the mineral rights, not the surface rights, so they’re left for other purposes like wildlife and recreation.

He said the Rocky Mountain Wild report also failed to take into account the different types of geology, important when it comes to making oil wells profitable.

Take central Montana, for example: Only about one in 10 wells drilled reach commercial production, so there’s a high cost to development. Meanwhile, wells in eastern Montana, which are part of the Bakken Shale Play, produce at much more successful rates.

“All of sudden there, your economics improve,” Olson said.

Montana’s federal lands are also complicated. Many of the federal lands that can be leased, Olson said, are in a checkerboard or random fashion. Most oil wells require 1,280 acres of space. That means that the mineral rights can often crisscross into federal, state or privately held lands, requiring negotiating with all parties. Olson said there’s a misperception about how wells and oil exploration even operate. For example, most wells are horizontally drilled, not vertically. And leasing the land is just one part of permitting and engineering.

“You could be dealing with 40 to 80 individuals; it’s very complicated,” Olson said. “People are trying to regulate this industry, and they have no idea how it works.”

He said that more paperwork, longer review processes, wildlife challenges and litigation have steered many away from leasing on federal lands, and instead looking for private property owners and even state lands.

For example, he pointed out that a drilling permit on federal land is more than $10,000 while a state permit costs $150.

“There are so many restrictions already,” Olson said.

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Darrell Ehrlick
Darrell Ehrlick

Darrell Ehrlick is the editor-in-chief of the Daily Montanan, after leading his native state’s largest paper, The Billings Gazette. He is an award-winning journalist, author, historian and teacher, whose career has taken him to North Dakota, Minnesota, Wisconsin, Utah, and Wyoming. With Darrell at the helm, the Gazette staff took Montana’s top newspaper award six times in seven years. Darrell's books include writing the historical chapters of “Billings Memories” Volumes I-III, and “It Happened in Minnesota.” He has taught journalism at Winona State University and Montana State University-Billings, and has served on the student publications board of the University of Wyoming.

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