Land Ownership and Delay in Oil and Gas Production: a Natural Experiment

Eric C. Edwards (Utah State University)
Trevor O'Grady (The College of New Jersey)
David Jenkins (Apache Corporation)

Abstract: We examine oil and gas drilling on federal, state, and private lands in the Wyoming checkerboard by comparing permitting delays and price responsiveness. These lands were alternatively allocated to private owners at the square-mile section via the Pacific Railroad Acts between 1862 and 1871, and two of every 36 sections, numbers 16 and 36, to state governments under the General Land Ordinance of 1785. Prior to 1970, we find all three types of lands see similar delays in the time from permit submission to first drilling. However, from 1970 onwards, and especially as a result of the shale boom after 2003, well drilling on federal and to a lesser extent state land is delayed relative to wells on private land. The results suggest that bureaucratic delay has a significant effect on whether a well is drilled: post-2003 around 37% of federal wells that receive permits are never drilled versus only 17% for private wells. To test how this delay affects production, we examine the price elasticity of drilling, finding evidence that drilling on private land is more price-responsive: average drilling elasticities for gas wells in the checkerboard are around 0.78, but when separated by land type, drilling on private land is more responsive to price.

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