President Joe Biden said that his policies have not made the U.S. less equipped to withstand the impact of the ban on Russian energy imports. He contended that the onus is on U.S. oil and gas companies that have permits to begin drilling, but haven’t started.
“It’s simply not true that my administration or policies are holding back domestic energy production,” Biden said March 8 in a speech announcing a U.S. ban on Russian oil imports. Biden said that companies pumped more oil in the U.S. during his first year in office than during his predecessor’s first year and that we were on track for record oil production next year. Then Biden pivoted to point the finger at the industry:
“In the United States, 90% of onshore oil production takes place on land that isn’t owned by the federal government. And of the remaining 10% that occurs on federal land, the oil and gas industry has millions of acres leased,” Biden said. “They have 9,000 permits to drill now. They could be drilling right now, yesterday, last week, last year. They have 9,000 to drill onshore that are already approved.”
Biden said that the companies are not using these permits to drill. “These are the facts. We should be honest about the facts.”
Is Biden sharing all the facts here? He’s right on the numbers of permits but what that means is a little more complicated than his statement suggests.
The industry could move forward with the permits that it has that are currently unused and could ramp up domestic oil production to replace Russian oil, but these moves take time.
The status of drilling permits during Biden’s administration
The U.S. has more than 24 million acres under lease to oil and gas companies onshore — close to half are not producing.
Before drilling can occur, the leaseholder has to get a federal permit. At the end of 2021, there were 9,173 approved and available permits to drill on federal and Indian lands. Those permits include those issued under Biden and those still active from Trump’s administration and potentially before, said Josh Axelrod, of the National Resources Defense Council. Companies don’t have to immediately begin drilling as their leases last 10 years and can be extended beyond that.
From a federal regulatory standpoint, once a permit is approved, industry can proceed.
The president suggested the onus is on the industry to start drilling. But it’s not as simple as Biden made it seem, because there are some steps before companies begin production.
Companies have to contract rigs to drill the wells, and build a sufficient inventory of permits before rigs are contracted, said Jennifer Pett, a spokesperson for the Independent Petroleum Association of America, a trade group that represents oil and natural gas producers.
“Producers also have to put a drilling plan together, secure rights of way and work with state and private landowners,” Pett said.
Thousands of unused permits are not uncommon in any presidential administration.
Douglas Holtz-Eakin, an economist and president of the American Action Forum, a center-right think tank, said firms are trying to assess the durability of the global rebound. “They have to be sure that the costly investment (and time) that it takes to turn a lease into a producing well is worth it.”
Oil and gas companies can raise funds from investors by not drilling on leases with proven reserves, said Hugh Daigle, an associate professor at the University of Texas’ Hildebrand Department of Petroleum and Geosystems Engineering.
There is actually an incentive for the companies not to develop these resources because for publicly traded companies, these reserves get reported and influence market valuation, Daigle said.
“Sometimes there might not really even be producible oil and gas on a lease,” Daigle said. “Companies sometimes hold leases as a bit of a mind game with their competitors, or even just because they didn’t properly assess the production potential prior to leasing due to lack of data or that sort of thing.”
In 2020, the oil bust created worker and supply shortages and caused companies to cut their budgets. Investors remain reluctant to invest in fossil fuels. Pavel Molchanov, an analyst at Raymond James, told CNN Business that “oil and gas companies do not want to drill more.”
“They are under pressure from the financial community to pay more dividends, to do more share buybacks instead of the proverbial ‘drill, baby, drill,’ which is the way they would have done things 10 years ago. Corporate strategy has fundamentally changed.”
Experts also suggested that drilling domestically is more costly than drilling overseas, which could further deter oil companies in the U.S. from upping production.
“While the cost to extract one barrel in Saudi Arabia is somewhere around $10 or $15, in West Texas it can be as high as $70,” Gernot Wagner, an associate professor of environmental studies at New York University, told PolitiFact. “So it simply wasn’t profitable to drill with oil below $70. With oil at $120 or more, drilling there is wildly profitable.”
Subhead: How oil drilling in Biden’s first year compares to Trump
Biden has a point that the U.S. produced more during his first year than Trump’s first year.
During Biden’s first year in office, the U.S. produced an average of about 11 million barrels of crude oil per day compared to Trump’s 9 million barrels per day in his first year. The average barrels of crude oil produced per day spiked during Trump’s subsequent years, swelling to almost 12.3 million in 2019.
The U.S. Energy Information Administration in January forecasted that U.S. oil production will average 12.4 million barrels per day during 2023, surpassing the record high for domestic crude oil production set in 2019.
Biden said the oil industry has “9,000 permits to drill now. They could be drilling right now, yesterday, last week, last year.”
Biden’s number is correct: There are 9,137 approved permits to drill on federal and Indian land, and the oil industry could use those permits and drill. However, once the permit is approved, drilling doesn’t start overnight. Some companies choose not to drill for corporate reasons — because they can raise funds from investors by not drilling on leases with proven reserves.
Having thousands of unused drilling permits is not something that is unique to Biden’s tenure.
We rate this statement Mostly True.
This fact check was originally published by PolitiFact, which is part of the Poynter Institute. It is republished here with permission. See the sources for this fact check here and more of their fact checks here.