Independents tell US House subcommittee about federal lease delays

Representatives of the oil and gas industry described federal leasing delays, which they consider unnecessary, on onshore public lands during an Aug. 2 US House Energy and Commerce subcommittee hearing.

Policies enacted after US President Barack Obama took office have made it harder for producers to operate on federal lands, said Kathleen Sgamma, government affairs director for the Western Energy Alliance of Denver, a regional association of independents.

“Producers struggle to navigate additional bureaucratic barriers on federal lands, while many avoid federal lands at all costs because it’s just too difficult to realize any return on investment within a reasonable time frame,” Sgamma said.

Federal officials suggested market forces could play as big a role as policies in keeping US onshore oil and gas production on public lands from growing as fast as production on private and state acreage.

But Sgamma said policy changes made during 2010 added leasing analysis layers to an already complex system. Consequently, the US Bureau of Land Management offered 81% less acreage in fiscal 2011 than in fiscal 2008, she said in written testimony prepared for the hearing.

Delay examples given

Stewart Petroleum of Engelwood, Colo., spent nearly 4 years trying to get a nine-well project in eastern Utah approved. Eventually, Steward Petroleum moved its operations to private land in Kansas, Sgamma said.

She also cited other examples of what she called burdensome federal processes and delays created by environmental groups.

Ewing Exploration of Sugarland, Tex., started an oil exploration project in the Wyoming’s Bighorn basin in 2005.

“Initial exploratory work determined that adjacent federal acreage was necessary to fully develop the resource,” Sgamma said. “Continued delays by BLM in bringing leases to auction while it conducts additional analysis in the area have isolated Ewing’s initial $3.5 million investment and prevented domestic oil resources from being developed.”

In another example, Sgamma said Impact Energy Resources LLC of Denver lost Utah tracts awarded during a November 2008 BLM lease sale because US Interior Secretary Ken Salazar declared the results invalid in early 2009.

Impact Energy, a small Denver upstream independent, learned the US Forest Service wanted to withdraw leases in Wyoming that the company acquired in 2006.

WEA persuaded USFS to revoke that decision, but “bureaucratic inertia means that those leases continue to languish without production,” Sgamma said. “This small business has suffered over $500,000 in legal fees and lost business because of these ill-advised decisions.”

WillSource’s experience

Reed F. Williams, cofounder and president of WillSource Enterprise LLC in Denver, told the subcommittee that associates acquired seven leases from BLM in the White River National Forest in 1996.

“Over the years, WillSource and its private investors have invested approximately $10 million” in the Divide Creek Offset project, he said in his written testimony.

Williams said an environmental impact statement existed, but the USFS required WillSource to complete a redundant environmental assessment (EA) that took nearly 2 years to complete.

Two wells subsequently were drilled. WillSource and the USFS agreed it would be in the forest’s best interest if WillSource waited to hook up the two wells until a third party’s planned pipeline was constructed.

WillSource agreed to wait for a third-party pipeline instead of building a duplicate line. After waiting 5 years, the pipeline and processing facility are built. But the USFS now wants WillSource to get another EA, Williams said.

When the USFS asked WillSource to move a well pad to avoid steep drainage issues, WillSource worked with forest rangers and BLM staff members to pick another site, Williams said.

Then, WillSource was informed of new EA requirements including new forest road design and maintenance rules, and the USFS permit for a road to reach the site was withdrawn until the new EA is completed, Williams said.

USFS-related issues prevented WillSource from fulfilling BLM’s development obligations, Williams said. Environmental groups are asking BLM to revoke several WillSource leases because development times need to be extended, he said.

“If federal procedures actually make it impossible for WillSource to fulfill the various requirements of the different federal entities, and WillSource loses its investment in this public lands project because of it, this case exemplifies why oil and gas activity on federal lands is decreasing,” he said.

EIA: Many factors involved

Alaska and North Dakota regulators told the subcommittee that states are moving quickly to reform and improve their operations. They urged the federal government to do the same.

Leasing and production policies on federal and Indian tribal lands are only one of many factors, US Energy Information Administration Administrator Adam Sieminski told the subcommittee.

Increased gas production from shale, found largely outside federal lands, has contributed to lower gas prices and lessened the relative attractiveness of conventional gas resources—including those on federal and Indian lands, Sieminski said in written testimony.

Michael D. Nedd, BLM assistant director for minerals and realty management, said that, unlike private landowners, the US Department of the Interior agency must manage its holdings for multiple uses. It also must meet requirements under the National Environmental Policy Act and other federal statutes.

Scale is another factor, he continued. “On public lands in the western United States, industry may propose one well or a large-scale development which may lead to thousands of wells,” Nedd said in his written testimony. “If BLM approves a proposed large-scale development, marked increases in production may occur in that area.”

Mary Wagner, USFS associate chief, said that the US Department of Agriculture agency acreage hosts nearly 20,000 wells in 19 states, nearly 75% are on split estates with privately held subsurface minerals, primarily in the eastern US.

Most of those wells produce low volumes, are typically 2,000-3,000 ft deep, and occupy less than 1 acre of surface, she told the subcommittee.

National forests in the East also have significant shale gas potential, she added.

Most current oil and gas production is in the West, primarily in the Bakken formation on the Dakota Prairie National Grassland in North Dakota and the San Juan Basin of northwestern New Mexico in the Carson National Forest, Wagner said.

Contact Nick Snow at nicks@pennwell.com

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