Democrats just accidentally sparked a federal fracking boom
Eyeing more restrictions on drilling following the 2020 presidential election, some US oil and gas companies may accelerate fracking on public lands over the next year.
Concho Resources said that in order to mitigate risk from a potential ban on fracking in 2021, the company is running rigs on its federal acreage now.
The comment comes in light of the relatively strong rise of Massachusetts Senator Elizabeth Warren, who is arguably the front runner, or at least in the top tier. Vermont Senator Bernie Sanders has trailed a bit, although a new poll from New Hampshire has him in first place there. Former Vice President Joe Biden, who offers up a more industry-friendly approach to energy and climate change, has slid in the polls. He is still considered among the top tier, but his fundraising has been anemic, his performance halting and unconvincing, and his momentum heading in the wrong direction.
Senators Bernie Sanders and Elizabeth Warren have both promised to ban hydraulic fracturing. As president, neither would be able to outright ban the practice entirely, as it would require an act of Congress. But their ability to disrupt the use of fracking on federal lands would be much greater.
“‘If Sen. Warren were to win…’ was getting a lot of airtime in our meetings,” Jake Roberts, an exploration-and-production analyst at Houston’s Tudor, Pickering, Holt & Co., told the Wall Street Journal recently. “We were surprised to see people taking it so seriously.”
Tudor Pickering said that if fracking were banned, oil and natural gas prices would spike and many oilfield services companies would be forced out of business. A mid-October analysis from RBC Capital Markets found that Talos Energy was most exposed to a regulatory crackdown, largely the result of a hypothetical ban on offshore drilling in federal waters.
A Cowen Inc. analyst told the WSJ that some companies that have a relatively heavy reliance on federal lands have underperformed lately, “coincidentally, or not.” Those include, Devon Energy, Concho Resources, and Occidental Petroleum. Meanwhile, companies like Kosmos Energy, Hess Corp., and Apache Corp. would lose little, Sanford C. Bernstein analysts said in early October.
Ironically, some of the oil majors might stand to benefit, since higher prices would boost revenues from their oil and gas sales elsewhere, offsetting their losses in the Permian and other shale basins. Canadian oil producers would also benefit as some of their shale competitors are knocked on their backs, although Canadian pipelines traveling to the US would likely be on the chopping block as well.
Federal lands play a particularly prominent role in New Mexico, and to a lesser degree in Colorado, Wyoming and North Dakota. New Mexico has rapidly become one of the fastest growing sources of new oil and gas production. Permian drillers have increasingly migrated from West Texas into New Mexico, targeting land that has yet to be developed. Even as some counties in Texas have lost rigs over the past year, nearby counties in New Mexico have seen an increase.
But the comments from Concho Resources are the most concrete example to date of the industry acting in advance of potential regulatory restrictions. Concho’s Chairman and CEO Tim Leach went out of his way to briefly touch on the company’s risk from regulatory action in his prepared marks on an earnings call on Wednesday. “Today, sentiment toward the sector is low and amplified by campaign promises to severely limit or regulate away oil and gas operations,” Leach said. “Since we don't know how the politics will resolve, I'll clarify that our exposure to federal acreage is about 20 percent of our total gross and net acreage position. And our capital allocation toward that acreage is roughly the same.”
When an analyst followed up and asked him how the company plans on mitigating the risk of a federal ban, Leach said: “the things that we are doing to mitigate that are, we have quite a bit of activity on them right now,” before adding that the company could pivot back to the comfort and safety of private land in Texas. “We've always run a program where we have properties right across the state line where you can move rigs back and forth.”
He added: “We have a great deal of flexibility if we need to reallocate that capital.”