US shale producers race for federal permits ahead of presidential election

Federal permits have risen 80 percent in Texas and New Mexico, where oil and gas revenues account for up to a third of state budgets. (Shutterstock)
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Updated 08 September 2020

US shale producers race for federal permits ahead of presidential election

  • Oil firms hedge their bets as Democrat hopeful gains ground against Trump

HOUSTON: Oil producers in the top US shale fields are stockpiling drilling permits on federal land ahead of the November US presidential election, concerned that a win by Democratic candidate Joe Biden could lead to a clamp-down on oilfield activity.

Federal permitting in the largest US oilfield in the Permian Basin, located in Texas and New Mexico, is up 80 percent in about the last three months, which analysts attribute to a hedge against a win by Biden, who currently leads US President Donald Trump by several points in national polling.

Biden has stated that he does not want to ban fracking outright, putting him at odds with many environmentalists and Democratic party activists.

However, his climate plan includes banning new oil and gas permits on public lands, which industry groups say would hurt the economy and cut off an energy boom that has made the US the world’s largest crude oil producer. 

The shale revolution of recent years boosted US crude output to roughly 12 million barrels per day last year through hydraulic fracturing, or fracking, which is environmentally controversial as it involves pumping water, sand and chemicals into rock at high pressure to release oil or natural gas. As of Aug. 24, producers have received 974 permits so far this year for new wells on federal land in the Permian, compared with 1,068 for all of last year and 265 in 2018, according to data firm Enverus.

In the 90 days up till Aug. 24, producers received 404 permits in the Permian, compared with 225 and 11 in the same period in 2019 and 2018, respectively.

The scramble for permits comes despite the weak outlook for oil drilling and prices due to the ongoing coronavirus pandemic.

Crude prices plunged in spring following the outbreak and have remained stuck near $40 a barrel. The number of oil and gas rigs drilling new wells in the United States hit record lows for 15 weeks and last week was 71% lower year-on-year, according to Baker Hughes data, and analysts do not expect a sharp rebound for some time.

Uncertainty about a ban and other possible regulatory changes, including a proposal to modify royalties to account for climate costs, mean more permits will be filed ahead of the election, said Bernadette Johnson, vice president at Enverus.

The industry has raced to file for permits before ahead of potential regulatory changes.

In Colorado in 2018, as voters considered a proposition to increase the distance required between new wells and buildings, permitting jumped 165 percent in the last six months of the year compared with the first half, according to Enverus. At least nine producers stockpiled more than two years’ worth of permits.

EOG Resources Inc, Cimarex Energy Co, Matador Resources Co. and Devon Energy Corp. are among the shale producers who have said they expect to have years of drilling permits.

Devon is “proactively managing risks” by stockpiling more than 550 federal permits in New Mexico and Wyoming, Chief Executive Officer Dave Hager told analysts this month.

Most producers have “a runway of 12 to 18 months” in permits in the Permian and Wyoming’s Powder River Basin, said Jake Roberts at energy investment bank Tudor, Pickering, Holt & Co. Federal permits are for two years and can be extended another two, but there is no guarantee that routine permit extensions would continue in the future, Cimarex CEO Tom Jorden said on an earnings call in August.

US oil production remains below 2019’s peak and analysts expect it will be slow to recover in the coming year, as shale production depends on new investment due to the short life of the wells drilled.

The race for permits has centered on the part of the Permian located in New Mexico, said Artem Abramov, head of shale research at Rystad Energy. About 85 percent of well permits there have been on federal lands this year, up from 60 percent in 2018 and 2019 — evidence of companies trying to “fast track” permits on federal acreage, Abramov said. Meanwhile, permits on state and private lands, which features similar geology, have fallen.

New Mexico Governor Michelle Lujan Grisham, a Democrat, has said she would ask for a waiver exempting it from any drilling bans. The state is one of the nation’s poorest, and a third of the state’s budget comes from oil and gas revenues. Around 65 percent of New Mexico production is on federal acreage.

Matador and EOG have been two of the most aggressive in adding federal permits in New Mexico.

Matador expects to have 300 federal permits by late 2020.

“We think the chances of them saying you can’t drill on your leasehold are fairly slim,” CEO Joseph Foran told analysts in July.

Its new federal permits in two key New Mexico counties that are among the most prolific in the Permian Basin are up 149 percent so far this year, compared with its 2019 total, according to Rystad.

EOG’s permits in those same New Mexico counties, Eddy and Lea, are up 49 percent so far this year compared with all of 2019, according to Rystad.

EOG has 2,500 permits on federal lands in four states approved or in the works, enough for four years, Chief Operating Officer Lloyd Helms said on an earnings call.

The industry has secured so many permits that investors and analysts have largely shrugged off the political risks of a federal fracking ban.

“I’m not sure if it would have the big impact that people are making it out to be,” said Rob Thummel, energy portfolio manager at Tortoise Capital.


Economic boost tipped after UAE company ‘game-changer’

Updated 25 November 2020

Economic boost tipped after UAE company ‘game-changer’

  • Dramatic overhaul of corporate ownership laws follows accelerated reforms to shrug off pandemic slowdown

DUBAI: Radical changes to corporate ownership and investment laws could provide a significant boost to the UAE as it seeks to emerge from the ravages of the coronavirus pandemic lockdowns, business experts told Arab News.

The Emirati authorities have announced a raft of changes that relax restrictions on foreign ownership and make it easier for international businesses to set up and operate in the UAE, as well as new rules that will allow more shares to be listed on the country’s stock exchanges.

Economics expert Nasser Saidi said: “The liberalization of foreign ownership laws breaks down major barriers to the right of establishment. The reform is a game-changer.”

Tarek Fadlallah, CEO of Nomura Asset Management in the Middle East, said: “I would like to see some more detail, but if the deal is that you can leave London or New York and set up easily in the UAE, it’s revolutionary in regional terms.”

The changes were announced in the form of a presidential decree. “Maybe it’s pandemic related, but everything the UAE authorities have done this year has been extremely positive for the business and financial environment,” Fadlallah added.

Under the changes, companies seeking to quote shares on UAE markets will be able to list up to 70 percent of their shares, a big jump from the previous 30 percent limit, in a move that could reinvigorate local stock markets.

“It will encourage foreign direct investment, but also lead to a recapitalization of jointly owned companies and encourage entrepreneurs to invest in businesses and new ventures. Importantly, it will encourage the retention of savings in the UAE,” Saidi added.

The most eye-catching of the planned changes is the move to allow foreign firms to set up outside free zones without the requirement for a majority Emirati shareholder or agent.

The new set-up will in theory open the way for full foreign ownership throughout the UAE, although the Emirati authorities have been pragmatic in the past in their efforts to attract big-name foreigners. Apple was allowed full foreign ownership when it set up its first store in the country five years ago. 

Pandemic restrictions have hit an already sluggish UAE economy. (AFP)

More foreign firms setting up onshore could be seen as a threat for the free-zone model that has been one of the driving forces behind the UAE’s rise to become the regional business hub.

Habib Al-Mulla, executive chairman of Baker & McKenzie Habib Al-Mulla law firm, said: “Free zones will now face a real challenge. They either come up with a new package of incentives or their role ends.”

Other proposed changes also represent a break from the traditional business culture in the region. Rules that required a company chairperson to be an Emirati national, and for company boards to have an Emirati majority, have also been removed.

In addition, the decree allows for the dismissal of a chairman or any other board member if a judicial judgment is issued against them for committing fraud or misuse of power, while enabling stakeholders to sue a company in civil court over any failure of duty that results in damages.

Electronic voting will also be allowed at shareholder meetings, in a departure from the requirement for a physical show of hands.

“The decree is reflective of the UAE’s forward-looking vision to open up its economy by creating a favorable legislative environment that will keep pace with the changes taking place across the global economy and supporting companies operating in the country,” the official UAE news agency, WAM, said.

Some sectors regarded as of strategic importance — such as energy, utilities, and government-owned businesses — will be exempt from the new rules, and there is a certain amount of discretion given to local authorities in setting rules regarding Emirati directors and determining fees and charges payable under the new regulations.

This week’s changes are the latest in a series of reforms that have been accelerated in the UAE since the COVID-19 pandemic recession struck an already sluggish business scene.

New rules on residency visas have been introduced to alleviate problems in the real estate market, especially in Dubai, as well as a range of changes to social and lifestyle reforms.

“Along with the change in visa regulations, the new reforms will boost the UAE’s growth prospects,” Saidi said.

Ziad Daoud, Dubai-based chief emerging markets economist at Bloomberg, said: “Diversifying stock markets away from oil requires attracting foreign investment as well as fixing the distorted labor market. Most other measures are cosmetic. We’ll see how they are implemented, but the initial assessment of the new regulations is positive.”