Energy Prospectus

Stifel's take:
Oil & Gas Exploration and Production
Biden administration halts approval of new oil and gas permits on federal lands, placing long-term Permian and GOM production at risk - Derrick Whitfield
The Biden administration wasted no time in delivering on his campaign promise to ban new oil and gas activity on federal lands. President Biden issued an executive order earlier today to the Department of the Interior to place a 60-day freeze on new leasing and drilling permits while Biden's nominee for U.S. Secretary of the Interior, Rep. Deb Haaland (D-NM), awaits confirmation. The order did not limit existing oil and gas operations under approved leases. Once confirmed, Rep. Haaland could make the moratorium permanent. While the headline resulted in material underperformance for several Permian and Gulf of Mexico focused E&Ps today, we expect the value implication irrespective of outcome to be minimal as the largest operators have stockpiled permits and have meaningful non-federal development to pursue. In our view, a permanent moratorium is unlikely and would be challenged in the courts by industry if successful. Of noteworthy importance, Rep. Haaland's home state, New Mexico, would be severely impacted by the permanent suspension of activity as +40% of New Mexico's tax revenues are derived from the oil and gas industry.

MY Take: A permanent ban on federal land will send U.S. production down, fuel prices up and put OPEC+ in charge of energy prices. Dems need to be careful unless they feel confident in ability to rig future elections.

Devin McDermott – Morgan Stanley
January 22, 2021 2:58 PM GMT

This week, the Biden administration ordered a 60-day suspension of O&G permitting and leasing on federal land. While we expect the permit portion of ban to be lifted, the move signals a more restrictive policy backdrop. We remain constructive on Energy and explore implications across subsectors.
A Federal 'frac ban'? On Inauguration Day (Jan 20th), the Acting Secretary of the U.S. Department of the Interior (DOI) signed an order that suspended the issuance of both leases and new permits on federal land for 60 days (see here). The order was first reported yesterday and, if permanent, would effectively 'ban' drilling on federal land (once current permits are used or expire) - a more aggressive divergence from President Biden's messaging prior to the election which focused on restrictions for new leasing, not permitting on existing leases. ~25% of US oil production, ~2.7 MMbbl/d, is tied to federal lands and waters. . . Within this, higher decline, shale production comprises ~40%, and the remainder consists of conventional production in the Gulf of Mexico and Alaska. Among the shale plays, the majority of federal production is located in the Permian and Bakken. While the ban would not impact currently producing wells, it would impact new wells that offset natural declines in current production. Currently, just 14% of active land rigs are on federal land, 73% of which resides in the New Mexico portion of the Permian basin – which has the highest proportion of undeveloped acreage on federal land.. . . though declines in federal production can in part be offset by activity re-allocation. By itself, the DOI's order does not materially impact the industry. Federal drilling permits extend 2-years, at which time they can stretch another 2-years with approval from the Bureau of Land Management (BLM). Moreover, companies generally maintain a permit backlog that could sustain activity for multiple years.