A drilling rig and a pump jack sitting on federal land in Lea County, New Mexico.
A key part of the Biden administration’s effort to slow greenhouse gas emissions from energy production has been overturned, but it may not do much for the oil industry.
The administration announced on Monday that it would resume leasing oil and gas rights on federal land, after a judge ruled that it would have to start them back up again.
It’s a victory for the industry, but one that may not have much practical impact in the near term. In fact, stocks of companies that depend on federal leases have mostly been down since Monday, a sign that investors remain unconvinced that this will be a boon to the industry.
Halting leases on federal land was one of President Biden’s most controversial energy proposals during the election. Opponents said it would destroy jobs in the industry, and investors started to avoid some oil producers as the election neared. In the lag before the election, however, oil companies stocked up on leases — enough to carry them for several years. So when Biden ordered a moratorium on new federal leases shortly after taking office, some companies had enough to potentially make it four years without having to buy another lease. In addition, there has been a nationwide slowdown in oil and gas production, because companies have been conserving cash to return more of it to shareholders and pay off debt. So even if more land was available, there is unlikely to be a land rush now.
Biden will now appeal the judge’s decision and in the meantime resume the leases. But some industry advocates are skeptical about the government’s plans. Twelve industry trade groups, including the American Petroleum Institute (API), sued the Department of the Interior in federal court in Louisiana over the “indefinite pause” on leasing. API said that the department’s policy “continues to create uncertainty for U.S. natural gas and oil producers.”
API noted that the department hasn’t yet released a timeline or details about when the lease sales will start again and how they will operate.
Asked by Barron’s for those details, the department declined to comment. The department also pointed out in its release about resuming lease sales that the leasing program has historically been criticized for failing to take into account climate change, impact on Native American lands, and other issues. While leases might be resuming, the department wants to address some of those problems. It plans to “conduct leasing in a manner that takes into account the program’s many deficiencies,” the release said. For oil companies, that language implies that federal leasing could be more onerous than it has sometimes been in the past.
The stocks with the most on the line include EOG Resources (ticker: EOG), Murphy Oil (MUR), and Devon Energy (DVN), all of which have historically leased substantial amounts of federal land or water for production. EOG and Devon stocks have been falling for both of the past two days. Murphy fell on Monday, but was up 1.3% on Tuesday.