Oil and Gas Lease Sales Drive Additional Costs for Wyoming Producers

***For all things Wyoming, sign up for our daily newsletter***

By Kevin Killough, Energy Journalist
[email protected]

The Bureau of Land Management has announced a new round of federal oil and gas leases, but they come at a price, leaving Wyoming producers wondering if they can still turn a profit.

“It will be very difficult. I mean, the federal government is clearly biased against federal oil and gas,” said Randall Luthi, chief energy adviser for Gov. Mark Gordon.

The Inflation Reduction Act, which passed in August, increases the minimum bid for federal leases by 500% per acre. The law also increases minimum rental rates as well as royalties.

While environmental groups support many of the oil and gas policies emanating from the Biden administration, industry officials say the administration’s hostility is making it harder to operate in Wyoming.

Adequate protections?

Environmental groups closely monitor the leasing process to ensure impacts on wildlife, air and water resources are carefully considered before leases are issued.

“We just want to see a comprehensive comprehensive review that BLM has been promising for a number of years now on the federal oil and gas program,” said Shannon Anderson, an attorney at the Powder River Basin Resource Council, a watchdog group. Wyoming Energy based in Sheridan. .

The group also wants the minimum bond rules to be finalized before the BLM issues the leases and for those rules to adequately ensure that remediation costs will be covered. Anderson said that at current rates, it is sometimes cheaper for a company to forego reclamation of wells than to pay for the work itself.

“It actually creates a perverse incentive,” Anderson said.

As an example that current minimums aren’t high enough, Anderson cites federal programs, such as the one created under the infrastructure bill passed last year that provides nearly $5 billion to clean up orphan wells in across the country.

“It’s been a huge subsidy to industry and at taxpayer expense,” Anderson said.

The PRBRC has claimed in the past that the federal government rushed project approvals without conducting a full review of potential impacts on wildlife, climate and local communities.

The PRBRC joined the Western Watersheds Project in a lawsuit filed last month against the BLM over an approved 5,000-well project in Converse County. The lawsuit, which was filed in the U.S. District Court for the District of Columbia, argued that the approval did not properly enforce the federal land use plan or ensure the protection of wildlife.

Business decisions

Luthi said the Act’s guidelines on cutting inflation could cause the federal government to abandon quarterly rental sales altogether and use only annual sales. The new IRA rules also prohibit the non-competitive leasing process that would occur after companies fail to lease through the competitive process.

Luthi estimates the state will see about a quarter of the leases it has in the past.

Ryan McConnaughey, director of communications for the Petroleum Association of Wyoming, said Wyoming already faces a number of hurdles, such as rising transportation costs due to remote markets and rates effective tax rates, which are double the rate in Colorado and triple that in New Mexico. . Rising rental costs only add to the difficulties.

“Given the capital required to invest in drilling operations, Wyoming producers will need to consider these increased costs, as well as assess their confidence in long-term oil markets in order to make their business decisions regarding the sale of the lease. ,” McConnaughey said.

Oil prices have risen over the past two weeks to near $90 a barrel for WTI, but McConnaughey said that will only go so far to help cope with rising lease costs. .

“Companies are far more concerned about the long-term outlook in terms of price, access to capital, demand and the regulatory environment than about short-term fluctuations in the price of oil,” he said. .

Luthi pointed out that higher oil prices may help producers pay for increased costs from the federal government, but it also translates into higher costs for consumers. They also increase the cost of oil and gas production in Wyoming.

“The oil and gas industry also uses vehicles. So that just adds to the overall cost burden,” Luthi said.

Trump vs. Biden policies

Economists Stephen Moore and Casey Mulligan conducted an analysis of the impact of Biden’s policies on oil and gas production compared to where production would be under the policies of former President Donald Trump.

“The United States would produce between 2 and 3 million barrels more of oil per day and between 20 and 25 billion cubic feet more of natural gas under Trump’s policies. This translates into an economic loss – or tax on the US economy – of around $100 billion a year,” the economists wrote in their report.

Nathan McLeland, CEO of Gillette-based M&K Oil Co. LLC, said things have gotten considerably tougher since Biden took office. The company bid on some leases at the end of the Trump administration, and they still haven’t been issued.

” It’s a challenge. We have a lot of federal land in Wyoming,” McLeland said.

The Biden administration has not issued any leases since the third quarter of 2020.

While adding more spending to domestic oil production, the federal government has tapped into the Strategic Petroleum Reserve to help reduce energy prices. It is now at the lowest level in 40 years, leaving the country with about three weeks’ worth of oil in storage.

Bloomberg reports that in the spring of 2020, congressional Democrats rejected a Trump proposal to replenish supply using domestic oil producers when the price was around $24 a barrel.

Freelance journalist Michael Shellenberger, author of ‘Apocalypse Never and San Fransicko’, reports that the White House has reached a secret deal to buy up to 200 million barrels of oil from OPEC+ at over $80 a barrel to replenish the SPR, in exchange for OPEC+ not producing cutting oil. OPEC+ includes oil-producing nations in the Middle East, as well as non-members, such as Mexico and Russia. These nations supply 55% of the world’s oil.

The international group was not convinced by Biden’s request. It announced this week that it would go ahead and cut production by 2 million barrels per day.

“Instead of wringing his hands over his failed attempt to convince Saudi Arabia and other OPEC+ nations not to cut production, President Biden should do whatever he can to boost exploration. to strengthen our national security and support working Americans,” McConnaughey said.

hard working people

The BLM is proposing 209 parcels totaling 251,086 acres in the Wyoming draft sale, which goes through a 30-day period for the office to collect public comment on the sale.

McCleland maintains a sense of determination and says there are still opportunities for oil and gas in Wyoming, despite the challenges he faces working with the federal government.

“It’s a less user-friendly environment than before, but our operators are resilient,” he said. “And our industry is resilient. We will continue to do our best to try to convey the message that we are doing a good job, that we are working hard. And we provide a product that everyone needs and uses.

***For all things Wyoming, sign up for our daily newsletter***

Sallie R. Loera