U.S. gas and oil companies are preparing to begin the process to acquire new drilling rights on federal land for the first time since President Joe Biden took office.
The national average retail price of gasoline is more than $5 a gallon and political pressure building on the Biden administration to deflate energy costs. With that in mind, the U.S. Department of the Interior has six lease sales up for bidding.
This opens the door, in the short term, for oil and gas companies to begin adding to their undeveloped, unproved reserves. Further down the road, companies can prove, then develop and eventually begin producing from the leased land.
The lease auctions include 129 parcels totaling 131,600 acres in Wyoming. Also, fewer and smaller parcels in Montana, North Dakota, Colorado and Nevada. There are also smaller parcels in New Mexico, Oklahoma and Utah. The bidding process is expected to take place next week and continue through end of June.
A number of environmental groups filed a lawsuit against the Biden administration Wednesday, in an attempt to block the new oil and gas drilling leases, the New York Times reported. The groups argue the permits violate the Endangered Species Act as well as other federal laws.
This is the latest push by environmentalists to hold Biden to campaign pledges to ban all new oil and gas drilling on public lands.
New Policy
On April 18, more than a year after Biden issued an executive order prohibiting the sale of new oil and gas leases on federal lands, the White House announced it would resume the practice. However, it said there would be some changes.
The upcoming sales include federal land leasing reform policy that the Department of the Interior announced in November.
This includes a reduction in the amount of acres available for leasing and increased royalty rates paid to the government. The new rate is 18.75%, a 50% jump above the long-standing 12.5% rate, which had not been changed since first implemented in the 1920s.
Biden Pressures Oil Companies
Gasoline prices are soaring across the country, up 63% compared to a year ago, according to AAA data. In California the average price is $6.43 a gallon, while New York's average is $5.04. In May, the Labor Department's consumer price index increased 8.6%, the highest rate of inflation in 40 years.
Biden has recently ramped up criticism of the oil and gas industry. He alleges that companies are holding back on production increases due to pressure from investors.
Last week Biden criticized Exxon Mobil for not increasing capital expenditures. He said Exxon is keeping the oil supply low and gasoline prices high, as crude futures hover around $120 per barrel. Biden then wrote to executives at Exxon Mobil, Marathon Petroleum, Valero Energy and other oil companies and refiners. He accused them of restraining refining levels, sending gasoline prices even higher, Reuters reported Wednesday.
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"At a time of war, refinery profit margins well above normal being passed directly onto American families are not acceptable," Biden wrote, according to Reuters.
Oregon Democrat Sen. Ron Wyden is also reportedly planning to introduce a 21% surtax on oil company profits that are considered excessive, according to Reuters. Meanwhile, the U.S. Department of Energy on Tuesday said it was selling up to 45 million barrels of oil from the Strategic Petroleum Reserve. The sale is part of the previously announced stockpile release.
The Biden administration had announced in late March it would release a record 1 million barrels per day of oil for six months.
The Oil Market
The price of crude oil has been on an upward trajectory since the beginning of last year. Prices spiked following Russia's invasion of Ukraine in February. A global backlash against the invasion led countries to shun purchases of Russian oil. Spot prices for U.S. oil briefly touched $130 a barrel in March.
Oil and gas stocks have steadily outperformed this year's stock market. Gas and oil companies Exxon Mobil, Chevron and Shell — all significant players in the LNG field — can be found on IBD's proprietary watchlists, including the IBD 50 and the IBD Big Cap 20.
However oil production has not followed at the same pace as the price increase.
As of June 10, gas and oil companies had deployed 733 active U.S. oil rigs, up from 727 on June 3. This represents a more than 60% increase from last year, but remains below pre-pandemic levels of around 790 operating rigs in January 2020. It is well below industry peaks averaging above 1,000 working rigs throughout 2019.
Baker Hughes releases its weekly rig count census on Friday, which is closely watched to gauge industry activity.
Crude oil futures traded around $113 per barrel early Thursday, before rebounding to $118. Prices are still off from a June 14 high above $123. The decrease comes after the International Energy Agency data released Wednesday pointed toward slowing demand and rising output.
Stocks To Watch
Oil and gas drillers posted the top gain through May — up more than 96% — among the 197 industry groups tracked by IBD. Patterson Energy, Helmerich & Payne and Nabors Industries are the top primary land rig providers in the oil & gas drilling group.
Helmerich & Payne stock was down 6% Thursday. HP has dropped below its 10-week moving average as it pulls back from a three-year high notched June 8. Shares remain up 20% from a late-February breakout.
NBR also retreated below its 10-day average Wednesday, before diving more than 7% Thursday. Now leaning toward its seventh straight loss, Nabors has fractured a three-month basing effort.
Outside of the drilling group, Exxon Mobil was down 3.7%. XOM shares are testing support at their 10-week moving average, as they pull back after a five-week advance.
Diamondback Energy plummeted almost 9%. The top-rated energy stock has erased its narrow gains from a late-May breakout, but is so far holding support above its short-term 21-day exponential moving average.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
