Trump Wants to Expand Offshore Oil and Gas Drilling. Does the Industry?

by | January 9, 2018

By Keith Schneider

During his years in the White House, President Barack Obama erected barriers to oil and gas development on the West's public lands. President Donald Trump, mindful of the energy industry's view that those rules were too restrictive, has set his sights on dismantling them.

Yet for all the president's support, federal lease auctions have attracted far less excitement than expected from oil and gas producers, even in heavily drilled areas of Wyoming, North Dakota, Utah and Colorado. In other Western states, and in Alaska, producers greet most new auctions with yawns.

In March, Trump issued an executive order to unshackle the energy industry from "regulatory burdens" and assigned Interior Secretary Ryan Zinke to accelerate and expand the scope of federal oil and gas lease auctions. It was a major part of the president's plan to re-establish "American energy dominance."

Overall, the administration has insisted that its efforts are successful: The Interior Department reported that auctions of federal drilling leases earned $316.2 million in revenue in 2017, 38 percent more than in 2016.

In a few oil-rich areas of the West, producers are eager to lease. A February lease auction attracted $129 million in sales for 183,155 acres, mostly in Wyoming, an average of $705 an acre. A September lease sale in New Mexico's Permian Basin attracted nearly $131 million in sales from 61 parcels covering 15,331 acres, an average of $8,733 an acre.

"It's better to produce energy here under reasonable regulations than to watch it be produced overseas with no regulation," Zinke said last summer.

But those leases are the exception.

In early December, the Bureau of Land Management, a unit of the Interior Department, held a lease auction for 900 parcels and 10.25 million acres of the National Petroleum Reserve along Alaska's North Slope. Just seven parcels covering nearly 80,000 acres received bids. The highest bid was $14.99 an acre, indicating meager interest.

Another December auction in Wyoming offered 45 parcels for lease. Four parcels covering 2,978 acres attracted strong bids ranging from $301 to $3,271 an acre. But 19 parcels covering almost 37,000 acres were bid at just $2 an acre, the minimum amount accepted by the government. Four other parcels covering over 4,000 acres attracted no bids at all.

The BLM district in Ely, Nev., south of Elko, offered 208 parcels for lease in December that spanned nearly 389,000 acres of public land. Bids were received on just 17 parcels spanning 33,483 acres. The producers bid the minimum $2 an acre, which typically means the buyer is a speculator hoping to resell the lease, or use it as a financial asset for bank loans without any intent to drill.

"The administration is trying to remove some obstacles to leasing on public lands and that is a positive sign," said Kathleen Sgamma, president of the Western Energy Alliance, a Denver-based trade association. "But public lands production still has a higher break-even price. Producers take that into account, which is why some of the lease sales are not attracting interest."

Environmental groups are alarmed by how close the administration's leasing program is to sensitive areas across the West. Auctions scheduled for March will seek bids for public lands in Montana near Yellowstone National Park, and in Utah close to Canyonlands National Park. But in those regions, as in northeast Nevada, it is far from clear how much interest an auction will generate.

Why? In Nevada's Ruby Mountains, where a lease auction is proposed, geological surveys "show there is low to no potential for oil," said Jenna Padilla, the geologist for the Humboldt-Toiyabe Ruby Mountains ranger district.

Roughly 32 million acres of federal land are under lease across the West and Alaska, according to the Interior Department. Over 100,000 wells have been drilled, producing 166 million barrels of oil annually (less than 5 percent of U.S. production) and 3.2 trillion cubic feet of natural gas _ about 11 percent of U.S. annual production, according to the Energy Information Administration, an Energy Department statistics unit.

The Obama administration declared a moratorium on offshore leasing in the Gulf of Mexico after the Deepwater Horizon explosion and oil spill in 2010, and it trimmed federal onshore drilling and lease auctions. The number of new wells drilled on public lands, according to government figures, fell from 5,004 in 2008, the year before Obama took office, to 847 in fiscal year 2016.

Trump campaigned on a promise to discard regulatory impediments and unleash the nation's fossil fuel potential. With the help of cutbacks by Saudi Arabian producers, oil prices have climbed in the last year to $60 a barrel. American production, which has followed the rising price, reached 298.7 million barrels in October, most of it on private land, and more than in any month since May 1971, according to the energy information unit.

But America's demand for oil, which reached a 2005 peak of 20.8 million barrels daily, has fallen by more than 1 million barrels a day.

The lower demand, much higher costs for exploring questionable reserves, drilling and fracking very expensive wells that are often 10,000 feet beneath the surface, have made oil exploration more risky than ever before.

For that reason, the administration's work to boost onshore production from public lands is not at all assured.

There may be no more apt region to illustrate the point than on the high sagebrush desert and in the 11,000-foot Ruby Mountains close to Elko, a northeast Nevada city of 20,000, midway between Reno and Salt Lake City.

Outside f Elko, the U.S. Forest Service is preparing an environmental assessment for a 54,000-acre auction, the first that may ever be held on the 6.3 million-acre Humboldt-Toiyabe, the largest national forest outside Alaska. The auction encompasses much of the Ruby Mountains, which are part of the national forest.

Since Elko's start in 1868 as a stop on the Central Pacific Railroad, its founders and their heirs established a durable equilibrium between development and conservation of Elko County's land, mineral, and water resources.

Even as cattle ranches spread across the grasslands in the eastern part of the county in the early part of the 20th century, landowners and government officers agreed to establish the nearly 38,000-acre Ruby Lake National Wildlife Refuge in 1938. Several ranchers helped to found the anti-government Sagebrush Rebellion in the 1970s to resist federal oversight of public lands but a decade later Elko residents, including a number of ranchers, supported establishing the 90,000-acre Ruby Mountains Wilderness, which protects much of the range and its sensitive trout streams and game bird domain.

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