Oil giants bid $264 million for drilling rights in Gulf of Mexico

Oil companies on Wednesday bid a total of $264 million for drilling rights in the Gulf of Mexico in a sale mandated by last year’s climate law compromise.

The auction was the first in the Gulf region in more than a year and attracted interest from industry giants such as ExxonMobil, Shell and Chevron. It could further test the loyalty of environmentalists and young voters who supported President Joe Biden in 2020 but were frustrated by this month’s approval of the giant Willow drilling project in northern Alaska.

Development of the Gulf of Mexico public water leases for sale could produce more than 1 billion barrels of oil and more than 4 trillion cubic feet of natural gas over 50 years, according to a government analysis. Burning this oil would increase planet-warming carbon dioxide emissions by tens of millions of tons, the analysis said.


Bids won on Wednesday were 38% higher than the last auction and marked the most bids received since the Gulf wide bidding resumed in 2017. The amount of acreage receiving bids was comparable to 2021.

Another golf leasing sale is planned for September. It’s unknown how many more the administration might do, which could hamper the companies’ expansion plans.

However, analyst Sami Yahya said the approval of the ConocoPhillips Willow project in the National Petroleum Reserve-Alaska bodes well for the industry and prospects for future leasing.

“It showed that the Biden administration is likely trying to strike a balance between energy transition and energy security,” said S&P Global’s Yahya.

The Home Department’s sale comes two days before a deadline set in last year’s climate law that Biden signed into law.

The measure banned the leasing of public land for renewable energy unless tens of millions of acres were first offered for fossil fuels. This was a concession to gain support from West Virginia Democrat Joe Manchin, a supporter of the fossil fuel industry.

The climate law also increased the royalties that companies must pay for the oil they produce. The Biden administration set the rate for Wednesday’s sale at the maximum allowable rate — 18.75% versus 12.5% ​​historically — but that didn’t seem to dampen interest.

The lots offered at the auction covered 114,000 square miles, an area larger than Arizona. As with previous auctions of a similar magnitude, only a fraction of the available space — about 2,600 square miles — received bids.

The vast majority of the 313 tracts offered had only one bidder.

Bids were opened on Wednesday by companies in New Orleans, a state economically dependent on the oil and gas industry and particularly vulnerable to climate change.

Oil companies have offered a total of $264 million for drilling rights in the Gulf of Mexico (AP Photo/Dario Lopez-Mills, file)

Because offshore packages take years to develop before crude oil is pumped, the leases could produce oil and gas well beyond 2030, when scientists say the world must have drastically reduced greenhouse gas emissions to stave off catastrophic climate change.

Sea level rise is a factor in Louisiana’s steady loss of coastal wetlands, which not only support a variety of fisheries and wildlife, but also provide a buffer between inland population areas and hurricanes, which scientists say are associated with warming the world grow stronger.

Louisiana’s complicated relationship with industry is also exemplified by lawsuits filed by coastal communities over decades of alleged damage to wetlands from the dredging of canals to service oil and gas wells.

ExxonMobil offered the highest bids for 69 areas in the Northwest Gulf. The company bid nearly $15 million in 2021 for lands in the same part of the Gulf, which includes shallow waters — less than 656 feet deep — where most of the oil has occurred and few active leases.

Analysts said the acquisitions appeared to be linked to Exxon’s quest for government-industry collaboration to capture and store carbon dioxide from industrial plants in the Houston Ship Channel.

The carbon dioxide would be pipelined and injected deep beneath the floor of the Gulf of Mexico, a process known as Carbon Capture and Sequestration, or CCS. Oil and gas companies are turning to carbon capture to extend the life of their fossil-fuel assets, but critics say the technology is unproven and less effective than switching to renewable wind and solar power.

All leases sold are for oil and gas exploration and development only, federal officials said.

That means Exxon would need the Home Office’s cooperation to revise its leases before the company could pursue carbon capture, said Justin Rostant, a senior analyst at industry consultancy Wood Mackenzie.

“There might be some risks involved with actually being able to use it for carbon capture,” Rostant said. “I’m not sure how that will affect Exxon.”


ExxonMobil spokesman Todd Spitler declined to say whether there was a connection between his bids and the ship canal proposal.

“We will be working with the Home Office on plans for the blocks once they are allocated,” he said.

Before the final tender results were announced, officials from the American Petroleum Institute and the National Ocean Industries Alliance requested that additional lease sales be planned to allow the companies to begin exploration work.

Environmentalists again urged Biden to live up to his campaign promises to end new drilling and leases on state land and water. Diane Hoskins of the Oceana group said the Democrat could “deliver on his promise” by including an end to leasing in a long-overdue five-year plan for the Gulf.

A lawsuit challenging Wednesday’s sale is pending before a U.S. District Judge in Louisiana. It takes the government 90 days to evaluate all bids, which means they can still be blocked before submission. The 2021 sale was subsequently blocked by a federal judge and then reinstated under last year’s climate law.

“The government has talked a lot about taking climate change seriously and moving our economy off fossil fuels, and yet we continue to see massive oil and gas projects, both onshore with Willow and offshore in the Gulf of Mexico,” he said George Torgun, an Earthjustice attorney representing environmental groups in the case.


Chevron said in a court filing Monday that it could lose millions of dollars if the leases were blocked. The company plans to extract oil from the Gulf for decades, said Trent Webre, a Chevron executive in the region. .

In the coming months, the administration plans to auction more than 500 square miles of onshore oil and gas leases in Wyoming, New Mexico, Montana, Nevada and other states.

Source : www.foxnews.com

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