WorldWide Drilling Resource

26 NOVEMBER 2021 WorldWide Drilling Resource® Small Gas and Oil Companies Feel the Crunch Compiled the Editorial Staff of WorldWide Drilling Resource® In the aftermath of the 60-day moratorium on issuing leases and permits for oil development on federal lands and waters, many in the gas and oil industry are concerned about the future. The Interior Department order did not limit existing gas and oil operations under valid leases, so for some companies, production won’t come to a sudden stop on the millions of acres of lands in the west where much drilling is concentrated. Indeed, the seven companies controlling half the federal supply onshore in the Lower 48 states have lessened the expected blow by stockpiling enough leases and drilling permits to allow them to keep pumping gas and oil for years. These large corporations have also said they can quickly shift drilling to state or private acreage once federal permits dry up. But smaller independent gas and oil industry companies without the resources of big corporations are more worried about proposed tougher regulations and potential ban on issuing new permits on federal lands. What if the leasing ban becomes permanent? This would be more serious for companies without existing, long-term leases because gas and oil production in new shale-type wells declines quickly over two to three years, and this loss is usually replaced by drilling new wells. A drilling ban is usually not imposed directly. Once a lease is purchased, this implies a right to a permit to drill a well. But an application for a permit to drill still has to be made, and it is controlled by a resource and environmental assessment. Thus, smaller companies applying for additional permits would be at the mercy of the Bureau of Land Management officials, who could approve, defer, delay, or even deny the permit needed to drill a new well. Smaller gas and oil companies, especially, those with a high number of their wells on public land, probably wouldn’t have the resource flexibility to switch operations to private land. A large part of the industry is made up of smaller companies without the deep pockets to acquire multiple permits, install new emissions control technologies, or move their business elsewhere. Many smaller drilling companies operate in a single state or basin and would struggle to pack up and leave. Don Law, owner of Denver-based Prima Exploration Inc., which produces about half of its 1000 barrels of oil a day on federal lands, mainly in Wyoming, New Mexico, and North Dakota said, “The impact on the independent oilman is a heck of a lot greater than it is on Big Oil.” His main concern is with the promised new regulations, which are a threat unlike any he has encountered in 40 years in the oil business. Mark Murphy, a thirdgeneration oilman in New Mexico said, “I actually live here.” His company Strata Production has 15 employees and operates 47 wells, mostly on federal acreage. Antonio Magana, owner of a small gas and oil well servicing company, built his life and business around the leasing of public land to produce oil in Sublette County, Wyoming’s Jonah Field. He was hopeful the industry would bounce back, even in the face of a global pandemic. But with the indefinite pause on new leases, Magana is worried companies won’t need contractors like him. Just a year ago, there were 21 drill rigs across Wyoming; today, there are not more than six. With a skeleton crew, Magana is down to working just three days a week. He said, “Right now, not much [is] going on, you know, we’ve been working little hours.” The largest gas and oil producers have ample acreage and reserves to work from if new leases remain banned for some time, but smaller and mid-sized companies would bear the brunt from reduced access. Western Energy Alliance President Kathleen Sgamma noted most gas and oil developments in the western U.S. involve some kinds of federal lands, and added, “A ban on leasing and permitting is a death sentence to the industry in the West.” Photo courtesy of National Energy Technology Laboratory. G&O Visit us at Booth 1538 Help us bring this RESOURCE RE to you. Please sign up NOW to be sure you don’t miss a single issue. The form is enclosed with all the information.