US ELECTIONS: Drillers acting fast on federal wells ahead of potential Biden ban

While many US oil and gas producers have slowed drilling activity to a bare minimum in response to low prices, operators holding federal permits have boosted activity ahead of a potential ban expected if presumptive Democratic presidential nominee Joe Biden wins November's election.

These drillers' efforts to beat the election clock can be seen in the latest data on drilled-but-uncompleted wells, which show a rising share of DUCs on federal versus private land.

US oil wells drilled on federal lands surged to 22% of total wells drilled in June, from 12% in February, according to S&P Global Platts Analytics.

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Biden has said he would halt issuing new federal drilling permits, meaning operators could continue to bring their DUCs into production. He has not gone as far as many of his former Democratic challengers in promising to end drilling on federal lands completely or impose a national fracking ban.

However, Senator Kamala Harris, whom Biden named Aug. 11 as his running mate, has embraced harsher measures to limit US oil and gas production. Harris' climate plan mentioned closing the 2005 so-called "Halliburton loophole" that exempts fracking from federal oversight under the Safe Drinking Water Act.

"There's no question I'm in favor of banning fracking," Harris said during a CNN town hall in September.

Rapidan Energy Group said Harris "will likely pull the Biden platform further left on a nationwide hydraulic fracturing ban and possibly a ban on fossil fuel exports (neither of which Biden currently supports)."

Biden's ability to significantly change US energy policy will depend in part on whether Democrats take control of the Senate and hold the House of Representatives. A Democratic sweep would open up the possibility of major legislative changes, however several key moderate Democratic senators from energy-producing states could stand in the way.

Election risks

In North Dakota, where oil production saw a record 30% plunge in May from April, regulators say the bulk of any remaining drilling activity represented either operators with hedged production or those holding federal permits for wells that they wanted to drill before the November presidential election brings a potential change in administration and tighter drilling policies.

Election risks to US drillers were evident in second-quarter earnings calls, as executives spoke of continuing to act on federal drilling permits to build up a supply of DUCs before any federal policy changes.

Hess Corp. CEO John Hess said that while his company had reduced its exposure to federal onshore permitting to less than 3% of its North Dakota acreage and "significantly reduced" its Gulf of Mexico activity through 2021, a potential regulatory shift holds major risks for the US economy.

"Any proposals that would restrict our country's ability to explore, develop and produce that oil is going to be very bad for US jobs, very bad for the US economy and very bad for our national security," Hess said. "So we hope when people are thinking about future policy, when it comes to federal lands, reason prevails, which would be in the interest of all US taxpayers and consumers."

Possible shift to Texas

Permian Basin oil and natural gas Cimarex Energy signaled that it might have to shift some focus from its prime Delaware Basin assets in New Mexico to its Texas assets on private land. A third of Cimarex's acreage is on federal land in New Mexico.

"Our federal acreage is located in some of the best part of the Delaware Basin," said John Lambuth, Cimarex's executive vice president of exploration. "It's in the deepest part, it's the most-pressured part, it's oil in the reservoir, and it has some of the better water cuts.

"When we compare different assets, although they are all outstanding, by a little bit more you would say the federal acreage is very attractive to us and thus why we would want to get something done right now."

EOG Resources CEO Bill Thomas sounded similarly optimistic that the driller would be able to shift focus to wells on private land if it cannot obtain new permits on its federal acreage. "We've got a lot of confidence that we can continue to generate and add non-federal potential that's even better than what we have," he said.

Political tides

Pioneer Natural Resources CEO Scott Sheffield said he expects Biden to win based on current polling, which would bring significant risks to US drillers. But he said Pioneer has no activity on federal lands and "so should be unaffected" by a ban on new federal permits.

"I would expect pipeline infrastructure will be significantly delayed crossing state lines, [but] again, all of our acreage is in Texas, and we move our oil and our gas to the Gulf Coast," he said.

ConocoPhillips CEO Ryan Lance said the driller has successfully secured federal permits and brought wells into production through 50 years of US presidential administrations, including "those that have said they want to shut the business down and those who want to accelerate it, and we still managed to get our projects done because we do it responsibly, we do it sustainably, and we follow the process."

Tim Duncan, CEO of pure-play Gulf of Mexico producer Talos Energy, struck a similar tone: "It is our belief that being pragmatic on how to embrace the basin and its role in job creation, revenue generation for the federal government and our role in producing low-emission barrels will ultimately prevail politically."