How can potential fracking ban in US affect oil & gas output figures?

Oil&Gas Materials 29 January 2020 19:53 (UTC +04:00)
How can potential fracking ban in US affect oil & gas output figures?

BAKU, Azerbaijan, Jan. 29

By Leman Zeynalova – Trend:

A potential fracking ban in the US would likely have a little immediate impact on nationwide oil and gas production figures, Trend reports with reference to Rystad Energy.

The use of hydraulic fracturing, or fracking, has led to a boom in U.S. oil and gas production in the past decade. Fracking can affect the environment through groundwater contamination, air pollution and noise. Other concerns related to fracking are earthquakes induced by wastewater disposal wells and leaks of methane, a potent greenhouse gas.

“Even in the long-term, the impact might be quite negligible as seen from the greater industry perspective,” says Artem Abramov, Head of Shale Research at Rystad Energy. “However, the effects of such a ban could have stronger negative effects on one key shale producing region in particular – the New Mexico portion of the prolific Permian Delaware Basin.”

"A majority of significant Delaware New Mexico operators can maintain activity levels at the current pace (average of 2018-2019) for more than 20 years. If federal acreage is no longer accessible, the inventory size would decrease, but we would still see 10+ years’ inventory at the current pace for most operators, and as much as 19+ years for about half of the group. Needless to say, most of these companies have equally commercial opportunities on the Texas side of the Delaware basin, where federal acreage is practically non-existent,” states Abramov.

From a valuation perspective, a fracking ban would theoretically affect the full acreage potential and hence negatively impact the total portfolio value for some E&Ps.

Rystad Energy research indicates that as much as $36.5 billion in upstream asset value could be lost in Delaware New Mexico alone.

“Even if a fracking ban were to be implemented on federal lands, it is our view that this loss would not be entirely reflected in market movements. This is partly because the market currently puts little value on the long-term acreage potential, and also because the loss in value of federal acreage will result in front-loaded development of private and state-owned acreage. In practice, the loss in federal acreage value will be absorbed by the gain in the value of other acreage,” concludes Abramov.


Follow the author on Twitter: @Lyaman_Zeyn