Reprinted from Land Letter with permission from Environment & Energy Publishing, LLC.

By Phil Taylor, E&E reporter

The oil and gas industry has nearly 7,200 permits to drill on public lands that it has yet to use, according to Bureau of Land Management data obtained by Greenwire.

The unused, but still valid, drilling permits paint a starkly different picture from what industry and some in Congress have argued is a concerted effort by the Obama administration to lock up federal lands to energy production, said Dave Alberswerth, senior policy adviser on energy issues for the Wilderness Society and a former Interior Department official in the Clinton administration.

“I don’t see how the industry and their allies can maintain with a straight face this fiction that somehow the Obama administration is unduly restricting their access to public lands for drilling when they’re sitting on literally thousands of unused drilling permits,” he said.

But the number of unused permits only tells part of a regulatory picture that includes the need to also obtain air and water permits, seasonal restrictions, and economic factors, said an energy attorney and former official with Devon Energy, one of the country’s largest onshore oil and gas producers.

Wells sparse, permits to spare

New wells drilled on federal lands in 2010 were the lowest of the decade, but industry used less than half of its permits, BLM data indicate.

“The [application for permit to drill] is just one piece of the process,” said Todd Ennenga, a partner at the firm EnergyNorthAmerica LLC. Regulatory delays, environmental appeals, seasonal drilling restrictions and the price of mineral commodities can all contribute to the backlog in unused permits, he said.

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The unused permits, known as “applications for permit to drill,” or APDs, numbered 7,196 as of mid-March and could include permits issued as far back as March 2007, BLM said. The APDs cost $6,500 each and are good for an initial term of two years, which can be extended once for an additional two years at an operator’s request.

While the number of unused permits is in constant flux as more wells are spudded and more APDs are issued, neither BLM nor industry officials could say whether the number appears to be inordinately high.

Dave Murphy, BLM’s acting division chief for fluid minerals, said that while he can’t compare year-to-year figures for unused APDs, the level of activity is primarily driven by oil and gas prices.

“We see increases in leasing and permits go up and down with the price of oil and gas,” he said. “It appears to be an economic function more than anything else.”

Natural gas, which makes up the majority of production in the Intermountain West, was selling for $4.18 per million British thermal units this week on the Henry Hub, according to the U.S. Energy Information Administration. While the price has increased 33 cents over the past week, it is still far below a peak of more than $13 in summer 2008.

Murphy cautioned that about 2,400 of the 7,200 unused APDs were for coal-bed natural gas wells in northeast Wyoming’s Powder River Basin. The wells are typically drilled into shallower formations than other wells and are spaced much closer together, he said.

Operators in the basin have been given a drilling window of as little as a few months as they move westward into critical habitat for sage grouse and big game species, Murphy said.

Ennenga said some operators in the West may also be struggling to find available drilling rigs as companies flock to more profitable oil in North Dakota’s Bakken or Texas’ Eagle Ford Shale formation. There’s also a finite number of teams available to hydraulically fracture wells, Ennenga said.

The fracturing technology — which environmentalists and some public health officials fear could threaten drinking water supplies — is used on an estimated 90 percent of oil and gas wells on BLM lands.

“It’s a catch-22,” Ennenga said. “When things get good, it gets more difficult.”

But conservation groups say the number of available drilling permits — in addition to the more than two-thirds of federal leases that are not producing oil or gas — shows the Obama administration is doing all that it can to enable domestic energy production on public lands.

In January, Greenwire reported that although BLM had issued 4,090 drilling permits in fiscal 2010, oil and gas operators drilled 1,480 new wells, using about 36 percent of permits issued.

“This idea that somehow the Obama administration is restricting lands for oil and gas development is just a joke,” said Alberswerth of the Wilderness Society.

The gap between issued APDs and new wells spudded seems to be growing, Alberswerth noted. In addition, operators in the Rocky Mountain West, in Wyoming in particular, have begun temporarily stopping the flow of natural gas from wells due to unfavorable prices, he said.

Last October, ConocoPhillips announced it was “shutting in” a small portion of its wells in the hope that prices will rebound in the coming months and years, according to a Reuters report.

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