Report Says Prices, Not Policy, Hurting Drilling

A new report by The Wilderness Society seeks to debunk energy industry claims that the Obama administration’s land policies have resulted in fewer rigs across the West.

The real culprit is a decline in natural gas prices, the report says, outlining a decline that began months before President Barack Obama took office.

“The decline in price is the leading cause behind the decline in natural gas development activities,” the report says, “whether their operations are on federal or non-federal land. To attribute their production cutbacks and subsequent job losses to the Obama administration’s policies on drilling on federal lands is a baseless argument that contradicts the companies’ own internal strategies documents.”

The report is a reaction to statements by oil and gas industry representatives who have blamed the Obama administration for a drop in rigs across the West. Among them was a November 2009 paper by the Independent Petroleum Association of Mountain States, which claimed Obama’s policies resulted in “less American energy, less economic activity and fewer jobs for Intermountain West state.”

Earlier this month, the group took aim at proposed tax increases, fees and higher royalty rates for energy companies.

“This Administration continues to assure us that they are not ‘anti oil and gas,’ and yet every week brings some counterproductive new policy to make developing American energy even more burdensome,” said IPAMS Executive Director Marc Smith. “Every day I hear concerns from our members about whether they will be able to continue developing energy in the West. I have to wonder if shutting down all energy production on public lands is the ultimate goal of this administration.”

The Wilderness Society report suggests that the drop in drilling happened before Obama took office, mirroring a plunge in natural gas prices after a peak in mid-2008. Rigs plummeted from nearly 350 in May 2008 to fewer than 150 by March 2009. The drop followed a free fall in natural gas prices, from more than $10 per thousand cubic feet to about $3.

“Industry experts point to one obvious factor: plummeting natural gas prices,” says the report says, which calls the drop in gas production “wholly unrelated” to Obama policies.

Prices fell because of low demand, partly due to the recession, and to high supply, largely due to the discovery of new gas reserves across the country, the report concludes, echoing statements by some energy companies to investors.

“The industry ramps up activity when prices rise and reduces activities when prices fall,” the report quotes Devon Energy in its 2008 annual report, explaining its own cutbacks in drilling and production.

The Wilderness Society argues that even leases that have been approved on public land aren’t being drilled. Less than 30 percent of 45.3 million acres of federal land was under lease, the report says, mostly in the West. In Montana, less than 20 percent of leased land was in production.

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