US oil producers are preparing for a policy shift that may occur after next year's presidential election. All 17 Democratic presidential candidates have urged to limit US oil output by banning drilling on federal onshore and offshore areas.
A Democratic president will also likely implement stricter limits on fracking and flaring as well as increased scrutiny under the National Environmental Policy Act. This will lead to a significant reduction in US oil production, which EIA forecast will reach 13.4 million bpd by the end of 2020.
The drilling limitation on federal territories will put up to 2.9 million bpd of existing crude oil production at risk, according to Analysts with Rapidan Energy Group. The ban will also dampen production in the Permian, Bakken, and National Petroleum Reserve-Alaska.
Neil Hansen, an ExxonMobil vice president, said a ban on fracking would result in slow development in the Permian and other basins. Concho Resources CEO Tim Leach also noted that the company prepared to move into private lands if a fracking ban on federal lands materialized.
Producers in New Mexico, Colorado, and Wyoming are expected to suffer the most significant impact of the ban. Producers in New Mexico have planned to move forward development in the federal acreages before the election takes place.
In addition, production in offshore federal leasing may face more serious immediate risk, according to ClearView analysts. The US Gulf of Mexico region produces about 1.96 million bpd of crude in August and is expected to reach 2.1 million bpd by the end of 2019, according to EIA.
The Trump administration is currently formulating a five-year offshore leasing plan to open more drilling areas in Alaska's offshore and in the Atlantic and eastern Gulf. However, a Democratic administration will likely revoke or ignore the plan.
The oil industry is expected to make legal challenges if the new administration tries to limit oil production on federal lands and waters.
