After winning the election in November, President-elect Donald Trump began filling key positions in his incoming administration with individuals who align with his vision of “energy dominance” for the United States. If approved by the Senate, Trump’s second-term administration will include Chris Wright, the CEO of Liberty Energy, a frac services company, as Secretary of Energy. Additionally, Doug Burgum, the Governor of oil-rich North Dakota, will take on the roles of Secretary of the Interior and Chairman of the newly created National Energy Council.
Trump has made expanding oil and gas drilling in the U.S. a top priority, particularly focusing on speeding up the permitting and leasing processes on federal lands and waters. In the short term, faster approval of federal permits could slightly boost production in regions like the New Mexico portion of the Permian Delaware. However, this increase would likely come from shifting capital away from other projects, as exploration and production (E&P) investors are unlikely to accept lower returns and decreased capital efficiency if operators boost capital expenditures and ramp up production growth too quickly.
While Trump’s policy could have a noticeable impact on offshore drilling and the issuance of export licenses for proposed liquefied natural gas (LNG) projects, its ability to significantly increase U.S. oil production onshore is more limited. Unlike other countries, where the government owns the majority of land and mineral rights, most oil and gas activity in the U.S. takes place on privately owned land. This means the President has less control over oil and gas development compared to leaders in other nations.
While the Trump administration can issue more permits and open up additional land for leasing, the maturity of the shale industry means that most companies plan their budgets well in advance. Given today’s oil price environment, operators are generally unwilling to take on higher-risk exploration. This leaves the federal government with limited tools to boost production. However, the U.S. government does own mineral rights to large portions of land in New Mexico through the Bureau of Land Management (BLM), including some of the most commercially productive drilling areas in the Permian Delaware sub-basin. Trump has outlined plans to expedite the approval of permits for drilling on federal land, which could help boost production.
A key question is how much more permitting would actually translate into higher activity and production. While there is available federal land outside of New Mexico, such as in Wyoming and Utah, wells on federal land in New Mexico are currently the most competitive for investment. As shown in Figure 1, Permian wells on federal land in New Mexico outperform other wells, both in terms of initial productivity and cumulative output over two years. This makes the federal land in New Mexico a vital area for operators. It’s important to note that Figure 1 tracks mineral rights, not surface land ownership, though in areas like the New Mexico Delaware, these two are often closely correlated.
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