As Donald Trump's inauguration as President of the United States ushers in a new policy era, what can the energy and natural resources industries expect? We ask and answer five critical questions about federal lands leasing and offer a framework for potential shifts ahead.
Q: Will President Trump's policy on federal leasing be a significant departure from the President Obama era?
A: The president has suggested access to federal lands will be different under his administration, but he has not released specific policy proposals, so we are not yet certain of the extent of possible changes.
As background, the federal government owns approximately 640 million acres of land across the United States, largely concentrated in the West. This equates to roughly 28% of the total land area. Approximately 100 million acres of onshore federal lands are available for leasing, with another 35 million onshore acres comprising current oil and gas leases.
Q: Will President Trump's more aggressive federal lands leasing targets make any significant difference to the US oil market?
A: A lot of factors play into operator strategies of when and where to drill, but oil price is the biggest. With prices where they are now, companies are keen to invest in areas that yield the most attractive economics — those with existing infrastructure and ample historic production to prove that sufficient oil and gas volumes are present. In other words, operators want to remove uncertainties, such as how new wells perform and what midstream costs might end up being, to make sure they can generate sufficient returns.
Right now, these areas are largely in the hands of private citizens. In fact, none of the major plays have a significant footprint on federal land. The Bakken, Eagle Ford, Permian (with the exception of some federal land in eastern New Mexico), Marcellus, etc. are all sitting on private land. It's likely that any play that takes off due to less regulation would have already been discovered.
This same principle is especially true offshore where costs are exponentially higher. The federal government would likely have to do more than just open the doors to federal waters to generate significant activity.
In short, we think the response will be positive, but not market-moving.