GAO: Protests don't affect federal onshore lease prices

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Aug. 31 -- Despite concerns expressed by the oil and gas industry, protests and leasing delays have not significantly affected prices bid for federal onshore leases, the US Government Accountability Office said on Aug. 30.

The office said GAO analysts were not able to measure the extent to which protests influenced the US Bureau of Land Management’s leasing decisions through information the agency maintains because BLM does not document the role protests play in decisions to defer parcels. “Protests were, however, associated with delays,” it added in a report posted at its web site, www.gao.gov.

“The results of our analysis showed no systematic effect of measures of protest activity on bid prices, although our analysis did not account for all possible determinants of bid prices,” the report said. When analysts from the congressional government watchdog service compared average bids per acre of protested federal parcels with those of unprotected tracts in four western states during fiscal 2007-09, they did not find a systematic effect of protests on the bid prices, it indicated.

“In the 29 lease sales where estimation was possible, we found that for 3 lease sales in Wyoming, the average bid price per acre was significantly higher for unprotected parcels than for protested ones,” it said. “In 3 other lease sales in Colorado, New Mexico, and Utah, however, we found a significant association between [a] higher bid price per acre and protested parcels. In the 23 other sales, we found no statistically significant correlation.”

The report also said that when analysts studied the number of protests per parcel and average bid prices, they did not find a systematic effect. “Finally, for the number of days of delay in issuing leases on protested parcels, we found no consistently significant statistical relationship with [a] lower average bid price,” it said.

Questions conclusion
An official at the Western Energy Alliance, the former Independent Petroleum Association of Mountain States, said on Aug. 31 that she found the conclusion questionable because it apparently was limited to near-term impacts from protests and delays, which more adversely affect producers’ mid and long-term decisions.

“I think it’s also important to note that GAO analysts couldn’t draw full conclusions because of the poor quality of BLM’s data,” Kathleen Sgamma, WEA’s government affairs director, told OGJ by phone from the group’s Denver headquarters. “It pretty much states in the report that it doesn’t know the full effects.”

She said GAO’s report also doesn’t address the effects of protests and delays on industry nominations of public land for possible leasing. “One of the main conclusions is that there are no near-term impacts,” Sgamma said. “When discussing protests and delays, mid and long-term impacts are more dominant. GAO seems to have dismissed this. It is forgetting there are implications 5-10 years down the road.”

Deferred acreage
GAO noted that while industry representatives have also expressed concern that protest activity could result in reduced federal acreage becoming available for leasing, it could not determine the extent to which BLM withheld acreage for that reason because BLM did not document whether protests influenced those decisions.

“During the period of our review, about 1 million acres, or 15%, of the approximately 6.9 million acres of land included in the lease sale notices in the 4 state offices, were deferred,” it said. The total represents an upper limit of potential acreage withheld due to protests because analysts could not determine how much of the land was the object of protests or whether it was subsequently leased later because BLM’s data was limited, the report said.

BLM also had not yet resolved protests filed on another 1.4 million acres, or about 20% of the 6.9 million acres identified in lease sale notices, “and resolution of many of these protests has been on hold following direction from BLM headquarters to await specific policy changes before resolving pending protests,” it continued.

Consequently, it is too soon to determine the effects of protests on acreage where the protests haven’t been resolved, and ultimately it may not be able to distinguish the effects of protests from those of simultaneous policy changes, according to the report. “Further, because oil and gas producers generally have up to 10 years from a lease’s issuance in which they can begin developing the lease, the effect of leasing decisions may not be felt for several years after the lease sale,” it said.

The report said that the near-term effect of federal onshore lease protests on total US oil and gas production will probably be relatively modest because public lands account for a small fraction of total US oil and gas production. Specifically, federal acreage account for 5.8% of total US crude oil production and 12.8% of total US natural gas production in fiscal 2009, it said.

“With the current supply of federal lands already under lease, however, oil and gas development and production may be able to increase along with any demand for such production,” it continued. “Of federal lands that are currently leased, 12 million acres are producing oil and gas, whereas 33 million acres have not been developed. Factoring in both federal onshore and offshore leases, a total of 67 million acres have not been developed, while 22 million acres are producing oil or natural gas.”

Possible buffer
While this undeveloped acreage may not all contain economically or technically recoverable resources, some of these 67 million acres “may provide a buffer for the energy industry—federal lands or waters that could be developed—if producers wanted to respond to market conditions with a rapid rise in development and production activity,” GAO said. “Energy industry representative said that while various factors influence a company’s decision to develop leases, the prices of oil and gas are a big driver.”

It said that when its analysts examined oil and gas price movements from 1990 through 2009 in relation to the number of wells drilled, they found that percentage changes in oil and gas prices closely paralleled percentage changes in development activity. “The peaks and troughs of these variables largely overlapped, strongly suggesting that during the past 2 decades, development activity reacted quickly and proportionately to changes in the prices of oil and gas,” it said.

The report said that federal onshore lease protests in the four BLM state offices during fiscal 2007-09 “came from a diverse group of entities, including nongovernment organizations representing environmental and hunting interests, state and local governments, businesses, and private individuals.” Protestors listed a wide variety of reasons for their filings, including concerns that oil and gas activity would impair fish and wildlife habitats or air and water quality, or adverse affect recreational or agricultural uses of the land, it said.

It recommended to the US Department of the Interior, of which BLM is a part, that the agency revisit its use of a module to track protest information and, as it does, implement an approach that is complete, consistent, and publicly available.

GAO also noted that in implementing onshore leasing policy reforms issued by Interior Sec. Ken Salazar in May, BLM should take steps to improve the transparency of leasing information provided to the public, “including information to explain the basis of agency decision to include or exclude particular parcels in a lease sale and, to the extent feasible, documentation of the role, if any, that protests played in final lease decision”, and to issue lease information more promptly without compromising the thoroughness of a review.

Contact Nick Snow at nicks@pennwell.com.



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