Replies to This Discussion

Permalink Reply by Steve P on March 12, 2021 at 12:01

I'm sure someone or some company has done this, but it would be very interesting to see a flow chart that shows the following below.  I don't know anything about how the Permian Basin works - what's the depletion rate for NG from existing wells; Is the formation like the HA, where you can drill one well to hold the lease and come back later and drill more wells on the same lease; for leases on Federal lands, do those same rules apply, or do you have to go through some more formal process to get a permit to drill additional wells, and how Biden's "moratorium" on new leases on federal lands will actually play out.  My understanding is that most of the Permian Basin in NM is on federal lands, and most of the TX lands are either privately owned or owned by the State of TX.  It is a fact that 40% of the total tax revenue in NM is tied to the O&G industry, with the biggest chunk of those funds generated in the NM part of the Permian Basin.  There is also O&G drilling/production in NW New Mexico, and nearly all of that is on federal or Native American lands.

Current NG production from the Permian Basin, and the projected production for those wells over the next 5 years, by State:

Existing but undrilled leases and their remaining terms in the Permian Basin that can be drilled, sorted by land in TX and NM;

Based upon the assumption that the federal government will not be granting any new O&G leases (or permits for new wells on existing leases), the hit in revenue that the State of New Mexico will experience over the next five years.  The State has already projected that revenues from O&G will not decline in 2021.

Based on the article above, the hit on NM companies and consumers over the increasing price of NG in the next 5 years resulting from increasing demand and declining supply.

I view myself as a good citizen, and not overly self-centered.  As I'm approaching retirement, my NG royalties from my Louisiana lands and minerals will become a more important part of my financial security.  Looking at just my personal bottom line, a moratorium on all new federal mineral leasing is good for my finances because it can only mean higher NG prices at the wellhead.  If FERC actually does stop approving new NG pipelines from Ohio and Penn to the east coast markets, that will likely have some upward effect of my wellhead price.  

But I think that those moves are not good for the US, so I don't support them.  

It appears to me that the moratorium on new leases in NM will be the "perfect storm" by 2022, or 23 at the latest.

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on March 12, 2021 at 16:01

Steve, I will withhold comment until I see the final regulatory changes.  I'm not expecting anything as drastic as the doomsayers predict.  I also think that it is obvious that there is not wide spread support amongst Democrats in Congress for the more draconian energy policies.  I expect to see a tightening of regulations on flaring and methane emissions and possibly a moratorium on new federal leases.  The existing leases should continue to be developed.

The reason I posted this discussion is to highlight the fact that there is uncertainty and hurdles for the two major natural gas basins competing with Haynesville gas, Marcellus and Permian.  Marcellus gas is at a disadvantage to Haynesville owing to distance and cost of transportation.  It should go east not south but there are challenges politically at the state level.  The Permian is subject to the price of crude and lack of NG take away capacity when companies are aggressively drilling.  We're going to read a lot about the rising price of WTI but we must keep in mind that much of the production is not technically WTI.  It is lighter and sells at a discount to WTI.  Permian "associated gas" will have varying impacts on Henry Hub natural gas prices depending on the level of drilling.

The industry is now high on the future prospects of natural gas (it comes and goes) and Haynesville gas will always be competitive based on proximity to end users.  I think it is beginning to sink in with industry CEOs that reducing emissions and flaring and supporting technology to capture and store carbon dioxide is the means to garner the political support of moderates and extend the useful life of natural gas as a major component of national energy policy.

• ▶ Reply

Permalink Reply by Steve P on March 14, 2021 at 15:04

So. I read the Santa Fe New Mexican daily, and JD Supra routinely.  Both have had articles about the moratorium on new federal leases.  I also follow, but less closely, federal actions regarding pipelines in general and NG pipelines in particular.   You are correct in that most of the actions that the Biden Administration have taken thus far are "first steps", but I can't quite imagine some movement in the other direction.  Here's an article from JD Supra on the leasing moratorium.  From what I can tell, the State of NM is assuming that this action isn't just temporary.

https://www.jdsupra.com/legalnews/biden-administration-announces-57...

Biden Administration Announces Moratorium on New Federal Oil and Gas Leases

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on March 14, 2021 at 15:41

New Mexico has the most to lose, so I would expect more concern on their part.  I think we will see amended regulations in the near future.  Until then, everything is speculation. 

From an industry standpoint, if you're not a company with major New Mexico interests, a reduction in oil production, and an even lesser reduction in natural gas production, is beneficial to supporting and stabilizing commodity prices on private and state owned lands. Moratoriums or bans on new federal leases doesn't effect Haynesville Shale production and in fact helps to support a steady pace of development.

Politics always comes into play.  Any federal actions that do not effect the industry writ large will serve to mute any objections from New Mexico and modest portions of economic basins in other states.  Of course the industry will pay lip service to objections but it largely benefits in the near term and understands that the political winds are no longer on their side.  As long as consumer energy prices remain relatively stable, there will be little, if any, political price to pay.  With the narrow Senate majority held by Dems, moderates will hold sway with President Biden and party leaders will be careful to not over step before the mid-term elections.

The loudest of political objections will come from those that deny the pace and threat of climate change.  A position that is fraught to say the least.  The percentage of the public that believes that climate change is real and requires substantive action from the federal government is going up every year.  That trend is unlikely to reverse.

• ▶ Reply

Permalink Reply by Max on March 15, 2021 at 2:47

It is a fact that 40% of the total tax revenue in NM is tied to the O&G industry, 

If I was New Mexico, I would be looking to find a new revenue source.  Putting so much dependence on one industry for tax dollars is not a good thing. 

Our county here in Texas heavily depended on tax dollars from one company and when they left, the county was hit hard.  We were lucky though, because our county leaders had the vision to look forward and had already been replacing that income with other sources.  That's why our county is growing with new industry and the surrounding counties are stagnate. 

Maybe New Mexico should use their other natural resources like the sun and wind to solve declining tax revenue.  Climate change is here to stay and the sooner we all decided that and move forward, the better it will be for all of us.  Pointing fingers at a moratorium on new leases is just like cussing the Model T Ford that just scared your horse.  

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on March 15, 2021 at 2:58

Good analogy, Max.  I would add that some of those new economic opportunities will be competitive and those states and counties that delay may reap fewer benefits.  That is my fear for Louisiana.  Our state leadership will double down on denying climate threats and trying to resurrect the O&G industry and will be late to the game on finding other economic niches to replace the lost jobs and revenue.  We are already in short supply of both.  Missing out on the energy evolution will leave Louisiana at the bottom of all the "good lists" for the remainder of the century.

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on March 15, 2021 at 4:30

The Interior Department will kickstart its review of the federal oil and natural gas leasing program with a March 25 public forum to gather input from industry representatives, environmental conservation and justice groups, and other stakeholders. Interior officials expect an initial report describing findings, recommendations and the next steps in the review to be published in early summer.

• ▶ Reply