Rigged: Industry’s real burden – low energy prices

Over the past few years, the oil and gas industry – aided by its army of lobbyists and millions of dollars in campaign donations – has spun a fabulous tale of oppressive rules and diminished access to federal lands.  Yet, industry:

If there were impediments to oil and gas production on federal lands – and it’s hard to say with a straight face that there actually were given that oil production on federal lands increased by 77% between 2008 and 2015 – they were related to market forces and the historic declines in oil and gas prices over the past few years.

Onshore Oil Production

Companies making business decisions in response to market conditions, including by slashing exploration and production budgets, should not be confused with purported onerous federal policies. Yet, that bait-and-switch is at the heart of industry’s efforts to undo common-sense protections for our national parks, wildlife, rivers and public lands.

Don’t believe us? Then listen to what industry is saying when its lobbyists are not on camera.  When shareholders and regulators are demanding straight-talk, not rhetoric. What’s industry saying? It’s the economy, stupid.

It’s the Economy, Stupid.

It bears repeating, but only because industry likes to ignore this fundamental truth: drilling follows oil and gas prices. When prices go up (or down), drilling follows suit. This bedrock principle cuts across administrations and policy decisions:

Drilling and Price

While industry reflexively blames federal overreach for the perceived declines in leasing and permitting over the past few years, in truth, it was just industry reacting to the market. Had oil and gas prices not declined precipitously in recent years, then industry would likely have purchased some or all of the 23 million acres of leases that BLM offered, but it chose not to buy. At the very least, it certainly would have applied for more drilling permits. This, in turn, would have allowed leasing and permitting levels to hold steady.

Another important point that underscores the outsized role of the market: as oil and gas prices tanked in recent years, so did leasing and permitting on state lands. In fact, in 2015, western states leased 66 percent fewer lands than they did in 2006 and issued 26 percent fewer drilling permits. If federal overreach were the problem, then we wouldn’t expect to see the exact same trend on state lands.  But that is, in fact, what we see.

State Land Lease State Oil and Gas Issued

Straight from the Horse’s Mouth.

As reported earlier this year, our country’s biggest oil and gas companies are telling their shareholders that federal policies are not materially affecting their bottom-line. So, what is then? If not “red tape,” then how is industry explaining to its shareholders that it’s passing on thousands of new leases and drilling permits? Let’s get it straight from the horse’s mouth – from some of the most active drillers on our public lands:

These are not hollow statements.  Over the past three years, the largest lease-owners on our public lands have slashed – by nearly half – their capital expenditures, the bulk of which typically goes to lease acquisition, exploration and production.

EOG Resources $7.5 billion $4.7 billion $6.3 billion 16%
ConocoPhillips $7.6 billion $5.1 billion $2.1 billion 72%
ExxonMobil $9.4 billion $7.8 billion $3.5 billion 63%
Anadarko Petroleum $9.3 billion $5.9 billion $3.3 billion 65%
BP $23.5 billion $19.5 billion $19.4 billion 17%
Devon Energy $5.7 billion $4.6 billion $1.6 billion 72%
Encana $2.5 billion $2.2 billion $1.1 billion 56%
Chevron $35.4 billion $29.5 billion $18.1 billion 49%
QEP Resources $2.7 billion $1.2 billion $1.2 billion 56%
Chesapeake Energy $6.2 billion $3.6 billion $1.4 billion 77%
Total $109.8 billion $84.1 billion $58.0 billion 47%

While industry’s lobbyists continue to intentionally mislead the public about the role of federal policies, away from the spotlight, industry is telling a much different story.  The market is, and will always be, the biggest factor that drives development on our public lands.


[1] Data for 2016 is available here: https://www.blm.gov/programs/energy-and-minerals/oil-and-gas/leasing.

[2] Where it was possible to include data for capital expenditures on domestic oil and gas exploration and production only, we did so.

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