Here's why U.S. oil production has been slow to recover following the pandemic-induced production crash.
Obtaining a permit is just one step in the chain that ultimately results in oil production. There are many other links in that chain, some of which are still problematic today. Further, they can’t just sit on the permits. There is generally a “use it or lose it” provision that requires them to give up a permit if they don’t develop the lease over a specified period.
But why did they stockpile so many permits? Stacey Morris, who is Director of Research for midstream index and data provider“The President mentioned thousands of permits on federal lands. The permit number is inflated from stockpiling. Companies stockpiled permits on federal lands leading up to the President’s inauguration, because several Democratic candidates, including the president, supported banning new drilling permits on federal lands. Permits do not equate to production.
Oil companies regularly lose money. In four of the past ten years, the oil industry lost money. Big oil lost $76 billion just two years ago. Therefore, they are proceeding with caution. They are maintaining more capital discipline. They aren’t rushing to do projects with the assumption that oil prices will remain above $100/bbl. They are doing projects with the assumption that in a year or more when the projects might pay off, oil prices will have retreated to well below $100/bbl.
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