By the numbers: Oil industry awash in permits, leases while pushing for more drilling
As war rages in Ukraine and debate over drilling on American public lands is once again in the news, a new dashboard from the Center for Western Priorities highlights the hypocrisy of the oil industry’s push to throw even more public lands open to drilling. Combined, the oil and gas industry holds leases to more than 25 million acres of publicly-owned minerals, roughly half of which sit unused. Companies now hold more than 9,000 approved, but unused, drilling permits on national public lands, all of which could be put to use today. Further, oil production on public lands is near all time highs, despite industry claims that the Biden administration has suppressed domestic production.
How did we get here?
For more than a century, the oil industry has taken advantage of a broken and rigged legal system that lets it drill on public lands at bargain rates. Let’s quickly run through the process.
First, oil companies — or any member of the public — can anonymously nominate a parcel of public lands they’d like to see auctioned for oil and gas development. The Bureau of Land Management must then evaluate those parcels, regardless of how ridiculous the nomination (inside a national park, no oil potential, etc…), and determine what lands should be leased at auction. Once put up for auction, drilling leases are sold at bargain prices — as little as $2/acre — and if they don’t draw any bids, speculators can snap up unsold leases at even cheaper rates.
Oil companies that buy those leases are then subject to unbelievably favorable terms that allow them to pay below-market royalty rates and sit on idle leases for years. Further, oil companies are allowed to submit bonds — deposits intended to cover the costs of cleaning up wells should they go bankrupt — that are far below the actual cost of remediating wells, leaving taxpayers on the hook for millions in cleanup costs.
Has the Biden administration shut down oil production?
The short answer is a resounding no. Even though it only accounts for roughly 7% and 8% of domestic production, respectively, oil and gas production on public lands is at or near an all time high. Similarly, the Biden administration is continuing to approve drilling permits. During 2021, the Bureau of Land Management approved nearly 4,000 drilling permits — a rate higher than during the first three years of the Trump administration.
Now, the oil industry is sitting on a remarkable 9,173 approved, but unused, federal lands drilling permits. To obtain a drilling permit, a company must pay a fee of more than $10,000 and use it within two years (with one two year extension possible). That means oil companies aren’t just speculating; they believe there is oil and gas in their leases and can use the approved permits now. Combined, three companies hold more than a third of all approved, but unused, drilling permits — EOG Resources, Devon Energy, and Occidental Petroleum.
It is also worth noting that roughly half of all approved, but unused, drilling permits are in New Mexico where drillers have dramatically ramped up production in the Permian Basin. Further, the Bureau of Land Management has continued its historical trend of rubber stamping drilling permits. In FY 2020 and FY 2021, the agency approved 98% and 96% of all drilling permits it processed.
In total, the oil industry now holds leases to more than 25 million acres of public lands — an area roughly the size of Kentucky. Of those 25 million acres, roughly half are sitting idle, meaning oil companies hold existing rights to develop those resources, but are choosing not to.
Why aren’t oil companies drilling?
Over the last decade, oil companies have not only been lighting excess natural gas on fire, they’ve been lighting money on fire as well. As of the beginning of 2022, oil companies listed in the S&P Oil and Gas Exploration and Production index had amassed $167 billion in debt, down from a high of $298 billion in 2020. Now that oil prices have risen, investors are looking to see profits returned to shareholders in the form of dividends and stock buybacks, rather than invested in more production. Similarly, banks that once lent oil companies money are now hesitant to commit more funds without guarantees that they will plow revenues into loan repayment, rather than more new drilling. Further, oil companies face a host of constraints when looking to increase production, namely the availability of drilling crews and sand for hydraulic fracturing.
In stark contrast to the rhetoric of oil industry trade groups, oil CEOs themselves are bragging to investors about their newfound “fiscal discipline” and determination to not increase production, which would inevitably lead to lower gas prices for American consumers.
When the invasion of Ukraine began on February 24, the CEO of EOG Resources — the largest holder of approved but unused drilling permits on public lands — announced it would hold back production growth, in line with its industry peers. Just days before that, the CEO of Devon energy — the second-largest holder of approved but unused permits — announced it would focus on “more dividends, less growth” in 2022. Devon’s stock price is up 150% year-to-year thanks to this move to keep gas prices high.
Similar statements abound across the industry. The CEO of Occidental Petroleum repeatedly talked up her company’s “shareholder return framework” on a February earnings call after the war began, promising investors that “we do not intend to grow production in 2022.” The CEO of Civitas Resources, one of the largest oil producers in Colorado with hundreds of unused permits to drill on private and public land, told investors this month that it would funnel its profits from high gas prices to shareholder dividends and stock buybacks, not increased production. And a vice president at Shell even admitted to Congress last week that the pause in public lands leasing enacted by the Biden administration last year has had no impact on the current price of gasoline.
In short, the constraints facing oil companies right now are not the availability of public lands or drilling permits, they are access to financing and supply chain shortages — the direct result of years of bad business practices.
The oil industry is cynically using the war in Ukraine to once again drag out its favorite policy playbook — blaming the president for high gas prices and asking the Interior Department to throw open all of our public lands to oil drilling while also reducing the already-weak processes for granting permits and leases. The data shows that the Biden administration is not standing in the way of public lands oil production and that oil companies have more drilling permits and leases than they know what to do with.
While global economies must consume oil and gas now and in the near future, it is clear we must transition to renewable energy — for the sake of our economy and our climate. One recent data point shows how this renewable future can be an economic boom. Last month, the Interior Department netted more than $4.3 billion at an auction for offshore wind leases in New York and New Jersey. That’s more than 23 times the paltry $131 million brought in by the last oil lease sale covering the entire Gulf of Mexico. So as oil companies once again use a crisis to ask the government for more drilling opportunities, it’s clear that, while oil companies are pushing to maintain their long held grip on our public lands, the future is renewable and the future is now.
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