President Joe Biden.
JIM WATSON/AFP/Getty ImagesSeveral oil producers fell on Thursday after the Biden administration halted new oil and gas leases on federal land and in federal water for the next 60 days.
The move wasn’t a surprise, given that President Joe Biden had said during the campaign that he would ban new leases. But the fact that the rule is now in place confirms that he hasn’t wavered, and it could affect some producers that depend on federal leases.
Oil was essentially flat on the day, but the lease moratorium caused stocks in the industry to swing, depending largely on their reliance on federal land.
Murphy Oil (ticker: MUR), which produces from hundreds of square miles in the Gulf of Mexico, fell 14%. EOG Resources (EOG) and Devon Energy (DVN), both of which produce a larger than average amount of their oil on federal land, fell more than 7% on the day.
Companies with less exposure fared better. Diamondback Energy (FANG) actually rose on the day, given that it has said it has “essentially no exposure to federal acreage.” Exxon Mobil (XOM) and Chevron (CVX) fell 2.9% and 3.5%, respectively, as their diversified business models should shield them somewhat.
The actual economic impact of the ban will likely be minimal, at least in the short term. About 10% of oil and gas is produced on federal land, and producers stocked up on leases late last year as it became clear that they might lose access going forward.
In fact, they signed more leases in the fourth quarter than they had in any other quarter during Donald Trump’s term, likely sustaining them for years into the future. Current leases will stay in effect even if future ones are banned or delayed. EOG told investors last year that it has significant opportunities on both public and private lands.
“If [Biden] tries to impose some regulations on how new federal permits are issued, we certainly already have a large inventory of existing federal permits that will sustain activity for several years,” said EOG Chief Operating Officer Lloyd Helms at an investor conference after the election in November.
This doesn’t mean that the Biden administration will have no impact on oil-and-gas companies. If Democrats pass higher corporate taxes or shut down more pipelines—already, the Keystone Pipeline has been blocked by executive order—it will likely hurt industry profits and could cause stocks of more producers to slump.
Write to Avi Salzman at avi.salzman@barrons.com
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