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$263 million offered for Gulf oil as part of climate deal

NEW ORLEANS – (AP) – Oil companies on Wednesday offered 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 approval of the giant Willow drilling project in northern Alaska this month.

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 (113 billion cubic meters) 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.

Oil prices have fallen sharply over the past year and it has been uncertain how many companies would be willing to invest in new leases. The total area for which bids were received was comparable to the area sold during the last auction in 2021.

Another sale is slated for September, but it’s unknown how many more management might complete, 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.

Lots offered at the auction covered 114,000 square miles (295,000 square kilometers), an area larger than Arizona. As with previous auctions of a similar magnitude, only a fraction of the available space — approximately 2,600 square miles (6,700 square kilometers) — 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.

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 region, which includes shallow waters — less than 200 meters deep — where most of the oil has occurred and few active leases.

Analysts say the acquisitions appear to be linked to Exxon’s push for a 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.

ExxonMobil spokesman Todd Spitler declined to say whether there was a connection between its offerings and the carbon capture proposal.

“We will be working with the Home Office on plans for the blocks once they are allocated,” he said. “ExxonMobil has a long-term business perspective and we will be evaluating the seismic and subsurface geologies for future commercial potential.”

Before final tender results were announced, officials from the American Petroleum Institute and the National Ocean Industries Alliance called for further leasehold sales to be planned to allow companies to begin exploration and secure future oil supplies.

Environmentalists again urged Biden to stick to a 2020 campaign promise to end new drilling and leases. Diane Hoskins of the group Oceana said the Democrat could “deliver on his promise” by including an end to the lease in a long-overdue five-year plan for the Gulf that Home Department officials say will be ready by the end of the year.

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 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 from future production if the leases are blocked.

“Chevron plans to produce from its leases in the Gulf of Mexico for the next several decades,” said Trent Webre, a Chevron manager in the region.

At the previous Gulf of Mexico auction in 2021, companies bid a total of $192 million for lands totaling nearly 2,700 square miles (6,993 square kilometers). That sale was subsequently blocked by a federal judge and then reinstated under last year’s climate law.

Over several months, beginning in May, the administration plans to auction more than 500 square miles (1,400 square kilometers) of onshore oil and gas leases in Wyoming, New Mexico, Montana, Nevada and other states.


Brown reported from Billings, Montana.


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