U.S. Federal Leases - 9K Permits ?

Introduction

As we start to wrap up the U.S. Oil Independence or Interdependence series, we decided to go down the rabbit hole of federal leasing and permitting, including putting together a visualization to see the correlation of oil production to leasing and permitting on federal lands.

Look for the final installment of this inaugural series in the next few days. Domestic production, imports and exports, refining, API differences, Onshore and Offshore federal leasing and production have been covered.

We'll tie it all together.

Fact Check:  9,000 Permits = True

Yes, there are nearly 9,000 permits available to drill, but like always the devil is in the detail and the truth is somewhere in the middle.

Available-to-drill permits have actually dipper below the 9,000 oft-cited recently in the media and political battles.  As of February 2022, the latest Bureau of Land Management update, 8,825 permits are available to use - 8,340 on federal lands and the remainder on Native lands.

It is also true only 12.6 million of 25.0 million leased acres are producing.  New Mexico leased acreage is only 4.3 million acres and the state produces nearly 70% of onshore oil despite holding 17% of leases.  Oil formations don't follow federal/private lease lines.

Drilling permits have always exceeded wells drilled.  2020 & 2021 saw increased expansion of the permit-to-spud ratio leading up to the election.

Visualizing the correlation of permits to wells drilled on federal leases, its apparent the last 15-20 years of oil production in the U.S. largely breaks down into three quadrants.

💡

Pre-shale wells were smaller thus more permits and more wellsLonger laterals, more efficient operations, Covid and a focus on capital returns likely led to below trend well drilling 2015-2021

What better way to equate permit to wells drilled than to look at the data.  The long-term Permit-to-Spud Ratio of 1.8x suggests 4,000 to 5,000 of the 9,000 +/- wells permitted are good drilling sites.  

At recent drilling rates, that suggests 2-3 years of real drilling inventory.

U.S. Federal Leasing

Not dissimilar to the data we showed in our recent Offshore piece, what acreage is offered for sale matters.  Offering a lot of federal acreage often does not mean selling a lot of federal acreage.

An as was shown in the Onshore piece, New Mexico dominates oil production from federal leases, just as they do leasing and permitting.

Litigation Nation

Environmental statutes in the U.S., including the National Environmental Policy Act (NEPA) and the Clean Water Act (CWA) allow 3rd parties to intervene in leasing and permitting.

It should be easy to see the recent uptick in enviro-litigation.

Leasing.  Permitting.  Production.  If only it was that simple.  Onshore leasing and permitting shows little correlation to production.  Said differently, there are far more acres leased than productive acres leased.

Geology matters.