Wyoming is about to hit another record low for new oil and gas leases, with the upcoming auction Wednesday offering just 159 acres.
It’s a small number with enormous implications for the future of oil and gas in the Cowboy State.
Kirkland Oil and Gas Landman Steve Degenfelder will be among those participating in what he expects to be a very short, 8-minute sale. He’s been on the front lines in Wyoming fighting against the Biden administration’s war on oil and gas. Tracking the disquieting drop-off in oil and gas lease acres is part of his job.
“I’m very disappointed as an explorationist, but I’m just as disappointed as a citizen of the state,” he told Cowboy State Daily. “This is going to hurt the state. It’s already hurting the state, in fact, because Wyoming gets a share of each of these lease sales.”
That share was $86 million in 2017, $57 million in 2018 and $69 million in 2019, according to figures Degenfelder sent Cowboy State Daily in an email.
“That’s not royalties or anything,” he said. “That’s just the lease sale bonuses they split with the BLM.”
The dip the miniscule sales like Wednesday’s is going to cause in royalties from so few leased exploration acres is hard to predict, Degenfelder said. That’s because only 5% of the leased acres likely have any oil production on them. But that 5% becomes very important down the line to future oil and gas production.
Kirkland is among the small oil and gas companies involved in that part of the industry, putting together packages for a variety of states, packages that at one time included North Dakota’s Bakken formation, which is in the Williston Basin. With the Three Forks and Baker formations, North Dakota has the No. 3 oil play in the United States.
“We look at every sale,” Degenfelder said. “Kirkwood is one of the holders of more undeveloped federal land in the country. We’re one of the highest ones, and we’ve put together exploration plays throughout that six-state area.”
Thumbing Their Noses At The Courts
One of the things that is infuriating Wyoming oil and gas companies about the current lease sale situation is that the courts have already spoken on the issue of holding oil and gas lease sales and affirmed that they must be held quarterly.
But a chart of oil and gas lease sales shows that the Biden administration is going through the motions and not really honoring the spirit of that court decision, Degenfelder said.
“They’re just thumbing their nose at Congress and the courts when you look at the number of tracts that have been on there,” he said. “They’re not offering leases in like a concession type, a big block. They just offer bits and pieces.
“So, it’s creating this proverbial jigsaw puzzle, and you’re trying to put them together as the BLM offers the lease sales and it’s just impossible.”
That’s led to huge swaths of unleased land in the Powder River Basin, which is hampering existing drilling leases.
“When you have (unleased federal) land that’s still open inside the drilling and spacing unit, it prevents anyone from drilling a well, even if they have an approved drilling permit,” Degenfelder said. “So just because they have 9,000 drilling permits and they’re not drilling wells, well, it’s because of things like that.”
The 9,000 drilling permits comment came in the early days of the Biden administration as a justification for not issuing more oil and gas leases. After that comment, Degenfelder mapped out some of these untenable situations for lawmakers to show why that comment was so disingenuous.
Putting Exploration Into Perpetual Limbo
Kirkwood alone has nominated around 1 million acres for oil and gas lease sales, none of which have so far appeared in any of the BLM’s quarterly lease sales. About half of those acres are in Wyoming.
“That’s how big the backlog is just for us,” Degenfelder said.
That figure doesn’t include the fourth quarter 2020 tracts that Kirkwood won at auction but have still not been released. Nor does it include tracts in the Powder River Basin that companies active in the area have requested the BLM offer.
Ryan McConaughey with Wyoming Petroleum Association told Cowboy State Daily it can be difficult to tell just how many acres industry has nominated in Wyoming, given the “antiquated and opaque” processes that BLM is using.
“As of about a year ago, I believe there were about 2 million acres of expressions of interest that were received, but that have not been offered,” he said. “That may have changed recently, because that was all pre-Inflation Reduction Act.”
As a result of the IRA, the Bureau of Land Management has been removing acreage that companies are no longer interested in.
“That doesn’t change the fact that the industry did, at one point, have an interest in these acres that was not acted upon,” McConaughey added. “Something that I do have concrete numbers on is the amount of acres that was initially offered by the BLM then deferred before the lease auctions actually happened. That’s at 603,000 acres.”
Those acres, McConaughey added, seem to have landed in perpetual limbo.
Degenfelder concurred with McConaughey on that, telling Cowboy State Daily that Kirkwood has asked BLM when those deferred acres will be put up for lease and has been told by the agency that there is no process for reconsidering deferred acres.
Aimed At Eighty-Sixing The Powder River Basin?
“That really stymies development there,” Degenfelder said. “Because a lot of these wells are drilled on 2-mile laterals. They put two sections together, and they are doing that down in Wyoming, too, but if one part of the section is federal and it’s open, you can’t penetrate the unleased federal mineral estate.”
That situation is being compounded by a recent court decision that’s put thousands of new drilling permits in the Powder River Basin on hold while new environmental analysis is conducted by the Biden administration.
“A lot of companies had put together big positions in the Powder River Basin,” Degenfelder said. “That was in anticipation of the completed (environmental study).”
If that environmental study takes too long, Degenfelder suggested that could lead to companies like Continental Resources, which has been active in the basin, spending their capital in other plays outside of Wyoming.
That could mean huge economic losses for the Cowboy State down the line.
“I think the Powder River Basin could have more potential than the Bakken, just because the Bakken seems to be defined as the Bakken and Three Forks formation, where the Powder River Basin is a bit more like the Permian,” he said. “It’s a stacked play.”
“Stacked” refers to a play having more than one rich oil and gas layer, which facilitates drilling wells with higher production and profit margins.
Renée Jean can be reached at renee@cowboystatedaily.com.
