Renouncing opportunity

July 21, 2014
US citizens should worry about not benefiting fully from their country's surge in oil production from unconventional resources onshore.

US citizens should worry about not benefiting fully from their country's surge in oil production from unconventional resources onshore. The Energy Information Administration expects the total production to reach 8.5 million b/d of crude oil and lease condensate next year, highest since 1972. In addition to boosting domestic energy supply, the increase, from a recent low of 5 million b/d in 2008, lifts employment, incomes, and tax revenues. But it comes disproportionately from nonfederal land. Stinginess with federal acreage by the administration means the imbalance probably will grow.

During the first 5 years of Barack Obama's presidency, US production of crude and lease condensate increased by 39%. According to recent EIA report, however, output from all federal land during those years fell by 6%. The onshore component—about 22% of the total in 2013—is a pleasant exception. But onshore production from federal land, which covers parts of important unconventional-resource plays including the Bakken shale, isn't increasing as fast as the US total. From a relatively small base of 285,000 b/d, output from onshore federal land grew during 2009-13 by 28%.

Reluctant leasing

The production gain from federal land lags behind that of the US onshore total largely because the government isn't leasing acreage and issuing drilling permits with the enthusiasm that might be expected during an energy-supply bonanza. The administration, in fact, is moving with growing reluctance.

Calculations based on data from the Bureau of Land Management, which manages most federal dry land, show the government has, on average, leased 1.64 million acres/year onshore during Obama's tenure through 2013. That's 45% of annual average leasing of onshore federal acreage during the administration of George W. Bush and 49% that of the administration of Bill Clinton. The Obama administration has approved onshore drilling permits at an average rate of 4,169/year—above the Clinton administration's 2,203/year but below the Bush administration's 5,215/year.

Restriction of activity on federal land forecloses not only oil production and associated wealth generated for the directly involved companies and individuals but also revenue for the federal government and therefore all Americans. Last year, according to the Department of Interior's Office of Natural Resource Revenue, revenue from royalties, rents, bonuses, and miscellaneous sources associated with onshore oil and gas activity totaled $3 billion. That was 69% of total revenue to the government from activities of all types on federal land. If the government issued oil and gas leases and permitted drilling faster on federal land, it could expect to make more money.

Yet the trend in federal onshore leasing, even as potential supply from unconventional resources rises, is down. Reforms adopted in 2010 added several steps to leasing procedures, mostly related to environmental review. According to the Western Energy Alliance (WEA), the time required to complete the process has increased from 3-6 months before the changes to 12-14 months now. That helps explain how total annual leasing of onshore federal acreage fell from an Obama-administration high of 2.02 million acres in 2011 to 1.75 million acres in 2012 and 1.17 million acres in 2013. The slowdown limits the nation's ability to profit from federally owned oil and gas resources, the rich potential of which has become so strikingly evident on nonfederal land.

Renouncing opportunity

Officials of the Obama administration have tried to justify their hesitant leasing and permitting by pointing to numbers of undrilled leases and unused drilling permits and claiming the industry makes insufficient use of its current leasehold. That argument ignores practicalities of play development and industry operations—especially in a period of elevated activity. Parts of it are simply incorrect. The WEA notes the number of wells spudded has remained about 71% of approved permits to drill in western states—which have the greatest concentrations of federal land—since 2000. In 2008-12, the share rose to 74%.

With its handling of the federal onshore, the government renounces opportunity. This is an obscure but real way of imposing costs on Americans.