The primary driver of drilling on public lands
The single most important factor dictating when and where oil and gas companies drill is the market price of oil and natural gas. This is Economics 101: lower oil and gas prices depress revenues and discourage investment into new drilling.
While everyday Americans benefit from low oil and gas prices—it means cheaper energy bills and lower costs at the pump—oil and gas companies want high commodity prices to invest in new development projects.
Some companies and industry groups have used low prices—and depressed interest in drilling new wells—to scapegoat responsible energy development rules and safeguards on public lands. But behind closed doors and in publicly available reports to investors, oil and gas companies are transparent and honest about what is driving drilling decisions: economics.
“Average commodity prices for 2016 fell below the already suppressed 2015 average prices, and, thus, continued to negatively impact our revenues, operating cash flows and profitability and adversely affected the price of our common stock.”
“[T]he substantial declines in crude oil, natural gas and NGL prices that began in 2014 and continued in 2015 and into 2016 materially and adversely affected the amount of cash flows we had available for our capital expenditures and other operating expenses and our results of operations during fiscal years 2015 and 2016.”
This reality plays itself out in the data as well. The following chart shows average annual natural gas price against approved permits to drill on U.S. public lands. When commodity prices are high, oil and gas companies pick up the pace of development. On the flip side, when prices are low, company interest in leasing and drilling is much lower.