A new report from the U.S. Energy Information Administration shows that the production of fossil fuels from federal lands fell in 2013 (the latest reporting period). This is a continuation of a long-term decline evident since at least 2003 (the earliest reporting period).
All fossil fuels from federal lands down for the reporting period
The decline is evident for all fossil fuels production from federal lands except for a slight 1% increase in crude oil production from 2012-2013 (following an overall decline of 11% since 2003). Total fossil fuels production from federal lands has declined 21% since 2003 with nearly 75% of that decline occurring since 2009.
Federal leases are down and drilling approval times are long
Politics aside (and there are tanker loads of political manure to spread around), today's investor should not look to the federal government to add to the energy boom. In fact, based on the Bureau of Land Management (BLM) statistics, it takes upwards of 195 days on average to approve an Application for Permit to Drill (APD) with 95 of those days for the BLM to process a completed APD with no deficiencies to resolve. In addition, the total number of leases issued in 2013 was down 85% from 1988 (the earliest reporting period) and 27% since 2003. Compare this to mere weeks on non-federal lands.
Go west (and northeast) young man
So what's the takeaway from this latest report? While the federal government controls vast amounts of acreage on both federal and Indian controlled lands, investors should continue to look to the states and for private lands with state-level APD approval processes. Fortunately, for shale plays, the federal government actually controls a small proportion of the reserves, even out west where the vast majority of federal lands exist.
The Center for Western Priorities reports that:
Nationwide, 90 percent of all current shale gas plays exist on nonfederal lands, with only 10 percent located on federal lands. Even starker, almost all shale oil resources exist on non-federal lands. Only 7 percent of current shale oil and mixed plays are found on federally owned lands with the remaining 93 percent on nonfederal lands.
Even in the Rocky Mountain West, where much of America's federally owned lands are located, only a very small percentage of high-value shale oil resources lie beneath federal lands.
This is confirmed by the more conservative U.S House of Representatives own report:
Any increase in production of natural gas on federal lands is likely to be easily outpaced by increases on non-federal lands, particularly because shale plays are primarily situated on nonfederal lands and is where most of the growth in production is projected to occur.
For example, Colorado's Denver-Julesburg (DJ) Basin of the the Niobrara Shale is almost all non-federal land as is the Marcellus shale play in Pennsylvania and New York. This allows companies greater opportunity to utilize these resources. In the northeast Marcellus play, National Fuel Gas Company (NYSE:NFG) owns mineral rights to vast acreages of non-federal land in the region in Pennsylvania and New York. Their Seneca Resources division handles NFG's exploration and production. Seneca reports that it has valuable producing resources out west in California as well, again on non-federal land in the Coalinga oil fields. In addition to production, NFG reports that it has nearly 3,000 miles of pipelines in the northeast, along with an interconnection to the TransCanada Pipeline.
Out west, in Colorado's DJ Basin, the Denver Post reports that Noble Energy (NYSE:NBL) is the biggest player, tapping into the Niobrara shale. Noble reports that it has control of 610,000 acres in the region with production from the DJ basin representing over one third of the company's production. In addition, Noble has entered into a joint venture with Pittsburgh-based CONSOL Energy (NYSE:CNX), increasing Noble's position in the Marcellus Shale to 700,000 acres. Together, this gives Noble/CONSOL access to over 1.3 million acres of prime shale plays in predominately non-federal lands.
While the federal government may own or control vast tracts of land, especially out west, and some may argue that they are actively discouraging fossil fuel exploration and production, the fact of the matter is that the states and businesses are finding vast opportunity, east and west, despite any hindrance the federal government may provide.