The Biden administration will likely release its long-awaited plan for oil and gas leasing on federal lands and offshore Gulf of Mexico as soon as the US Senate votes on a key Interior Department nominee, analysts said.
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Tracy Stone-Manning's nomination to lead the Bureau of Land Management is awaiting a final vote by the full Senate after advancing from committee with a party-line tie, which Vice President Kamala Harris can break.
Stone-Manning's environmentalist background split the Senate Energy and Natural Resources Committee during a contentious July 22 hearing, with Republicans portraying her as an extremist with ties to tree-spiking protests that disrupted logging operations, while Democrats asserted she was extremely qualified and passionate about protecting the environment.
"We think her confirmation vote could mark a Biden administration pivot towards a more restrictive federal lands policy," said Kevin Book, managing director of ClearView Energy Partners, in a note to clients.
S&P Global Platts Analytics continues to expect the leasing review to have only muted impact on the US production outlook, with onshore shale output rising to 8.5 million b/d by end-2022, from 7.3 million b/d in July 2021, and overall US production rising to 12.4 million b/d by end-2022, from 10.9 million b/d this month.
Until the Senate votes on Stone-Manning, Book expects Interior Secretary Deb Haaland and other Biden administration officials to "steer clear of hot-button issues that could potentially complicate support by Senate Democrats from fossil producer states," especially Senator Michael Bennet of Colorado, who is up for reelection in 2022, and Jon Tester of Montana, who faces voters in 2024.
Artem Abramov, head of shale research for Rystad Energy, also does not expect any signals from Interior on the leasing review until the Stone-Manning vote.
"I can only hope that it will happen soon as right now the industry [mainly offshore-focused producers and service providers] is somewhat frozen and cannot make any long-term strategic decisions amid uncertainty with future regulatory environment in federal water," Abramov said in an email.
Platts Analytics said permitting on federal lands has continued at a rapid pace during the leasing review, with more than 2,100 permits approved since President Joe Biden took office. The number of approved-but-undrilled permits has increased to over 9,000, or the equivalent of four years of inventory based on current drilling activity of about 85 rigs on onshore federal lands.
"Permitting is likely to continue at a strong pace due to backlog of 4,700 wells still pending approval," said Parker Fawcett, North American supply analyst for Platts Analytics. "With the significant number of stockpiled permits to drill on federal lands, operators have mitigated most near-term risk from potential changes to the permitting program."
Two lawsuits brought by 14 states with fossil fuel production have challenged Interior's leasing review, with one of the suits getting a US district court judge in Louisiana in June to order an end to the moratorium.
The judge granted a preliminary injunction in the case and ordered Interior to put back on the calendar Lease Sale 257 in western and central Gulf of Mexico and Lease Sale 258 in Alaska's Cook Inlet. The case's next status conference is set for Aug. 17.
Gulf of Mexico impacts
Rystad expects Interior's leasing review to have marginal long-term impact on US production even if federal leasing stops completely.
Most activity in New Mexico's Delaware portion of the Permian Basin, the tier 1 federal acreage, happens on existing leases, and 96% of those leases are already held by production or have existing approved drilling permits to be drilled soon, Abramov said.
"Outside of New Mexico, there is of course some oil & gas potential on federal land, which is less developed, in the Rockies region, but most of that is high cost oil and gas, which is hardly needed in the long-term from macro perspective," he said.
Changing the trajectory of onshore US oil production would take more severe regulations such as a complete drilling permit ban, but such a policy would not likely hold up to lawsuits, Abramov said.
"A lease is a legal contract and in both onshore and offshore operators tend to have a large number of service agreements and contractual obligations even before they start getting drilling permits," he said. "I would think we will see a large number of legal actions initiated by the industry if there is an attempt to stop permitting permanently."
Offshore drilling is the one area where the Biden administration's leasing plan could have a major impact, with output falling to 1.4 million-1.5 million b/d by the mid-2030s from the current 1.8 million-1.9 million b/d, Abramov said.
ClearView's Book expects Interior to sharply curtail federal leasing through rewrites of the onshore and offshore plans, in addition to higher royalty rates, greater bonding requirements, higher rental payments and shorter leases.