Unfavorable federal energy policies are largely to blame for the continuing decline in oil and natural gas leasing, permitting and new drilling on western lands from peak activity in 2007-2008, according to a new report commissioned by the American Petroleum Institute (API). The decline in activity on western lands was first detected in 2009-2010 and has carried over into 2011.

Based on data from Interior Department’s Bureau of Land Management (BLM), the number of federal oil and gas leases issued by the agency dropped by 44% to 1,053 in 2009-2010 from 1,874 leases in 2007-2008; the number of new permits to drill issued by the agency fell 39% to 3,962 in 2009-2010 from an average of 6,444 permits in 2007-2008; and the number of new wells drilled on federal lands declined 39% to 2,173 from 4,890 in 2007-2008, according to the report prepared by Colorado-based EIS Solutions.

“The trend in reduced leasing, permitting and drilling on western lands appears to be continuing. Although the 2011 total of 1,461 federal leases issued for western states appears to be higher than the 2009-2010 average of 1,053, closer review of the BLM data shows that the majority of leases that the BLM characterizes as ‘issued’ in 2011 were actually backlog leases that were sold in previous years but had been mired in challenges,” the report said.

In fact, it estimated that 860 of the 1,461 leases issued in 2011 were not new leases at all but rather were leases that were secured in previous years and were stranded, in most cases, pending resolution of legal challenges.

For 2011, the report calculates that only 601 new leases were actually sold, which is the lowest level since 1984. New drilling permits issued and wells drilled in 2011 were 3,851 and 2,783, respectively, both below the 2009-2010 averages and significantly below the 2007-2008 average, the report said.

“Clearly, the economic downturn starting in 2007 is a factor contributing to these results. However, if market factors were the sole driver of the federal lands permitting slowdown, it would be reasonable to assume that non-federal drilling permits would generally track the trends occurring with their federal counterpart. But this is not the case,” the report said.

In 2010 alone, non-federal permits across the West actually increased by 31%, even as federal drilling permits dropped 13%. The report showed that non-federal oil and natural gas production increased in 2009-2010, while federal oil production plateaued and federal natural gas produced declined during the same time frame.

The 2011 federal oil and gas production statistics that were recently released by BLM “had significant accounting adjustments and therefore current-year production levels could not be determined,” according to the report. BLM may release 2011 production estimates in February.

“These facts strongly suggest that the downturn in oil and natural gas activity on the nation’s federal lands is due to something beyond the nation’s difficult economic circumstances. A host of new rules, policies and administrative actions that are not conducive to oil and natural gas production on federal lands are a culprit.”

If the country were to return to the 2007-2008 leasing, permitting and drilling levels, the report estimates that this would result in an additional 620 Bcf of natural gas output annually from federal lands in the western U.S. between now and 2015, as well as an increase of between 7-13 million bbl a year of oil production. This could mean $2.1 billion in additional royalties for the federal government over the next five years.

Moreover, it estimates that it could result in direct employment increase in the oil and gas industry in western states of 6,914 jobs this year; 9,937 jobs in 2013; 9,713 in 2014; and 9,032 in 2015.

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