What Biden's moves on oil leasing mean for Permian Basin production

President Biden's freeze on new federal lands oil leases will deter Permian Basin output to a limited degree but will also push development from the New Mexico side of the basin to Texas, per a new Dallas Fed forecast.

Why it matters: It's an attempt to gauge the impact of emerging federal policies in the country's most prolific shale basin.

The big picture: The recently imposed leasing moratorium, combined with slower approvals of permits on existing acreage, would lower projected oil output compared to what's expected without those policies.

• Check out the "hybrid" above, which shows Permian production in 2025 around 200,000 barrels per day less than the "reference" case.
• That's hardly nothing, but not huge compared to the millions of barrels per day produced in the Permian.
• They also modeled aggressive restrictions that bars new drilling permits on existing leases ("restrictive" above), which lowers projected recovery from the pandemic decline even more.

Threat level: Restrictions have a much bigger future effect in New Mexico, which produces far less than the Texas side but is still a key source of revenues for the state.

• Half of New Mexico's Permian production is on federal lands, while in Texas production occurs on state and private lands.
• Under the leasing freeze combined with slower permit approvals, New Mexico's production in 2025 is 400,000 barrels per day lower than in the reference case.
• "With an expected shift in drilling from federal acreage, employment moves across state borders from New Mexico to Texas."

The intrigue: While the Biden administration has frozen new federal lands leasing, it has not moved to end permitting on existing tracts.

• Interior officials say large numbers are still going out the door despite tighter scrutiny.

Of note: Their analysis is based on WTI at $50 per barrel, which is well below current levels, so the production estimates should be considered conservative.

Charted: Visualizing New Mexico's oil future

This chart from the Dallas Fed analysis looks at New Mexico's projected Permian output under the leasing freeze and hypothetical permitting ban.

By the numbers: In the fiscal year ending in mid-2020, New Mexico received $2.6 billion from industry fees, royalties and taxes.

• Over $800 million came from the state's cut of revenues from federal acreage, the analysis notes.
• Under the leasing freeze case, production keeps returning from the pandemic decline this year, dips a bit in 2022, and then stabilizes and "preserves state royalty and tax revenue closer to current levels."
• If permitting ended as well, much more revenue would be at risk.