The Oil Industry’s Unexpected Problem With Trump’s Federal-Land Policy

Oil and gas experts are concerned the Trump administration is offering up too much public land for leasing in the West, despite a widely-celebrated, nearly $1 billion auction in the Permian Basin this month.

AP Photo/David Zalubowski
Sept. 26, 2018, 8 p.m.

Some members of the oil-and-gas community are delivering a surprising message to the Trump administration: Scale back the amount of public land eligible for leasing.

The energy industry has clamored for years for more access to the vast, undeveloped federally owned tracts of the western U.S. But the Interior Department’s Bureau of Land Management is now signing off on virtually all public lands requested, and some auctions are yielding dismal results.

That’s causing concern among big players in the oil-and-gas field. Poor results are skewing total BLM-sale statistics, and the administration’s efforts to limit public participation and environmental review are inviting legal action, energy leaders told National Journal.

A particularly glaring example of a less-than-desirable outcome took place in in Nevada earlier this month, when a BLM auction drew an astounding zero bids on nearly 300,000 acres. Those close to the process say wildcat speculators with unknown designs are driving the requests for lands where industry players have expressed minimal or no interest.

And despite the industry's general preference for limited government regulation over the leasing, Western Energy Alliance President Kathleen Sgamma has since staunchly criticized the Nevada auction, saying the BLM should rein in “bad actors” that are encouraging the agency to offer the land.

“At some point, they should just ignore this individual or these individuals’ nominations,” Sgamma, whose organization doesn’t publicize its membership but is known to represent big energy developers, told National Journal in an interview. “They should stop taking these huge nominations that are going nowhere. I think they can make an exception for that.”

Any individual can nominate parcels for sale. The BLM then conducts an analysis of the land and decides whether to offer a sale, before proceeding to an auction. An individual who nominates a parcel may decide against a purchase because of business factors, market changes, or other unknown reasons.

Sgamma said the BLM’s practice of rubber-stamping those nominated lands “throws off” the agency's statistics and leads to some criticism that the bureau is wasting taxpayer dollars by even conducting the auctions.

Analysis from environmental groups backs up Sgamma’s position . The Trump administration has so far sold 13.6 percent of parcels offered, including just 6.7 percent in 2017, while the Obama administration averaged roughly 25 percent through eight years, according to BLM data compiled by the Wilderness Society, an environmental group that routinely protests lease sales, and shared with National Journal. Those parcels that are not sold off in auction can later be bought noncompetitively for $2 an acre.

A BLM auction last year in the National Petroleum Reserve in Alaska yielded sales of only 80,000 acres on 10,257,029 acres offered. That’s an 0.008 percent sales rate. Another Alaska auction is scheduled for later this year.

The Wilderness Society and other critics argue that the BLM is dumping public land on the cheap that could otherwise be used for recreation or other purposes. Lease offerings across the West have drawn local opposition for their proximity to wilderness areas such as the Petrified Forest National Park in Arizona, Canyonlands National Park in Utah, and a mule deer migration corridor in Wyoming.

An energy consultant with decades of oil-and-gas experience both inside and outside government told National Journal that the BLM’s handling of leasing policy is rooted foremost in an ideological drive to unshackle industry from government restrictions.

“I don’t know that they have a well-thought-out policy on leasing other than just offer up everything they can,” said the consultant, who requested anonymity because of the sensitivity of the discussion. “I think from the administration’s perspective, they think they’re doing great things if they can show they’re offering all this acreage for lease.”

Another round of lease sales is in the pipeline for December, and so far the administration is pledging to continue on this course.

“While we cannot predict lease sales results, the BLM will always conduct lease sales quarterly when parcels are available for lease,” BLM spokesman Derrick Henry told National Journal. “This means tapping public lands for important energy needs in support of the America First Energy Plan, which includes oil and gas, coal, strategic minerals and renewable energy resources—all of which may be developed on public lands—and letting the free market to do its work.”

The energy consultant said the BLM’s handling of leasing policy encourages a political and judicial backlash.

“For all the opening up of the acreage and all the rolling back of the regulations that were put into place in the Obama administration, the whipsaw is probably going to be even worse than this rollback. And that’s part of what the industry has to be concerned about,” the consultant said. “From a business perspective, this is not a good thing for industry.”

That backlash could come through far stricter regulations on energy development once another Democrat lands in the White House, according to the consultant. And litigation, a favorite tool of environmental groups challenging leasing policy, can bring significant change, as well.

A federal judge in Idaho halted a 2018 Trump administration plan to streamline the approval process for leasing plans in the West. The lead plaintiffs in the litigation, the Western Watersheds Project and the Center for Biological Diversity, are touting the injunction as a win for public participation and species conservation. The ruling could affect leasing throughout the West, but so far the impact is unclear.

Chase Huntley, a senior energy and climate official at the Wilderness Society, said the White House is heading toward more perilous legal battles.

“The oil-and-gas industry has gotten exactly what they wanted, which is why it’s so surprising that some of their chief spokespeople are now raising questions and concerns about the circumstances,” Huntley said. “The gold-rush mentality we’re seeing is a direct consequence of the administration deciding that energy should be the dominant use of our public lands.”

But despite some grumblings in industry, the Interior Department is delivering some extremely high-profile tracts. The BLM sold nearly $1 billion in leases on the New Mexico side of the oil-and-gas-endowed Permian Basin this month for a whopping $95,000 an acre on average. That’s a stark contrast from 24.6 percent of parcel sales under the Trump administration that fetch only a $2 high bid, according to the Wilderness Society analysis.

The Permian is considered one of the richest sites globally, but the industry couldn’t extract the resources until the advent of horizontal drilling and hydraulic fracturing, more commonly known as fracking. Sgamma said the Trump administration needs to, for the most part, continue to allow industry members free rein over appropriate parcels, to encourage industry innovation.

“As long as an area is open for development, a nomination should go through, because we don’t know today which geologic formations might be the most prolific 10 years from now, 20 years from now,” said Sgamma. “Those low-potential areas could become high potential areas.”

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