NEW ORLEANS – (AP) – Oil companies on Wednesday collectively offered $264 million for drilling rights in federal waters 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 drew strong interest from industry giants including Chevron, BP and ExxonMobil. But it could further test the loyalty of environmentalists and young voters who supported President Joe Biden in 2020 and were frustrated by the approval of a huge drilling project in Alaska this month.
According to a government analysis, developing the gulf leases would produce up to 1.1 billion barrels of oil and more than 4 trillion cubic feet (113 billion cubic meters) of natural gas over a 50-year period. Burning this oil would increase planet-warming carbon dioxide emissions by tens of millions of tons, the analysis said.
A challenge to the sale of environmental organizations is pending in federal court.
Bids increased 38% from the last auction and were the highest bid for a sale since 2017. Chevron USA was the top bidder, bidding $108 million for 75 tracts. BP Exploration and Production had high bids of $47 million and Shell Offshore had high bids of $20 million.
The next golf rental sale is scheduled for September. It is not known how many more the government may undertake as it is under constant pressure to approve the ConocoPhillips Willow project in Alaska.
The uncertainty means companies could “try to lease blocks now in case future auctions are restricted,” said Sami Yahya, an analyst at S&P Global.
“From a global perspective, we are steadily moving towards an environment of stronger anti-fossil fuel sentiment as operators will continue to face greater public scrutiny over emissions,” Yahya said.
The sale came two days before a deadline set in last year’s climate law. The bill also prohibits leasing public land for renewable energy unless tens of millions of acres are first offered for fossil fuels. That was a concession to West Virginia Democratic Senator Joe Manchin, an industry supporter.
Manchin issued a statement saying the sales results showed the climate bill “puts this government’s feet in the fire” to continue fossil fuel production.
The climate law also increased the royalties that companies must pay for the oil they produce. The Biden administration set Wednesday’s interest rate at the maximum allowable — 18.75% versus 12.5% historically.
The lots offered 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 tracts had only one bidder as the company’s bids opened Wednesday 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. Then 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.
ExxonMobil offered nearly $10 million for 69 areas in the Northwest Gulf. The company bid nearly $15 million for land in the same area in 2021. It includes shallow waters – less than 200 meters deep – where most of the oil took place.
The acquisitions are likely related to Exxon’s quest for government-industry collaboration to capture and store carbon dioxide from industrial plants in the Houston Ship Channel, experts said.
“They intentionally leased properties where the geology was suitable for storage, and they knew that commercial-scale oil and gas production was not possible,” said Eric Smith, associate director of the Tulane Energy Institute.
The carbon dioxide would be pipelined and injected deep beneath the Gulf floor, a process known as Carbon Capture and Sequestration, or CCS. Oil and gas companies are turning to carbon capture to extend the life of fossil fuel assets. Critics say the technology is unproven and less effective than switching to renewable energy.
All of the leases sold Wednesday were for oil and gas only, federal officials said.
That means Exxon needs the Home Office’s cooperation to revise its leases before the company can use them for carbon capture, said Justin Rostant, 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. “That’s a big question mark.”
ExxonMobil spokesman Todd Spitler declined to say whether there was a connection between his bids and the ship canal proposal.
Environmentalists urged Biden to live up to campaign promises to end new drilling on state land and water. Diane Hoskins of the group Oceana said the Democrat could “deliver on his promise” by including an end to leasing in a long-overdue five-year plan for the Gulf.
Oil industry groups have called for more offshore lease sales to allow companies to continue exploration work to ensure future supply domestically.
It takes the government 90 days to evaluate all bids, meaning Wednesday’s sale could still be blocked. The 2021 sale was subsequently blocked by a federal judge and then reinstated under the Climate Change Act.
“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 pending federal lawsuit.
Many of the leases sold on Wednesday were in deep water, which Torgun said raises the likelihood of another major oil spill like BP’s Deepwater Horizon disaster in 2010.
Chevron said in a court filing Monday that it could lose millions of dollars if the leases were blocked.
In the coming months, 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.
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Brown reported from Billings, Montana.
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