Biden’s First—and Maybe Last—Gulf Oil Sale Draws Big Bids
(Bloomberg) -- Oil companies spent $191.7 million buying drilling rights in the Gulf of Mexico on Wednesday, during a robust government auction that underscored the industry’s appetite for new crude as the White House seeks to shifts the U.S. away from fossil fuels.
Analysts said bidding was driven by interest in lower-carbon crude from the Gulf of Mexico as well as uncertainty about the timing and conditions of future sales, which are expected to come with higher fees and stringent requirements.
In total, 33 companies participated, lodging 317 bids for 308 tracts spanning 1.7 million acres (688,000 hectares), according to the Bureau of Ocean Energy Management. Not since 2014, when West Texas Intermediate crude was priced around $80 per barrel, have more leases been sold at a single Gulf auction, according to bureau data.
The auction brought in a bigger haul than most of the Gulf sales conducted under former President Donald Trump despite an unsuccessful push by climate activists seeking for its cancellation.
Nevertheless, the average bid fell to just $622,366 per lease, continuing a downward trend that may reflect oil industry unease amid a rapidly shifting climate and ESG landscape.
Industry enthusiasm was stoked by the relatively low carbon footprint of crude extracted from deep stretches of the Gulf of Mexico, in contrast to production from foreign basins and short-lived onshore wells. Top bidder Chevron Corp., which had $48.9 million in apparent winning bids, highlighted the low carbon footprint and high returns of deep-water exploration during its second-quarter earnings call.
Energy companies “want to produce oil from regions with a low carbon intensity,” said Erik Milito, head of the National Ocean Industries Association. “With its world class infrastructure and prospective resources, the Gulf of Mexico provides an incredible value proposition in society’s efforts to tackle climate change while preserving jobs and economic growth.”
The auction came against the backdrop of higher oil prices and inflation that have provoked concern at the White House. The leases sold Wednesday are unlikely to result in production for five to 10 years but could yield crude for decades.
Environmentalists blasted the administration’s decision to sell new drilling rights, just days after President Joe Biden and Interior Secretary Deb Haaland highlighted the nation’s green credentials at the COP26 climate summit in Scotland. Although the auction was largely compelled by a federal district court ruling against Biden’s leasing pause in June, activists had argued the administration could assert other legal authorities to suspend the sale.
“Today’s lease sale is a black eye for the Biden administration,” said Jesse Prentice-Dunn, policy director of the Center for Western Priorities. “After President Biden and Secretary Haaland traveled to Glasgow to assert America’s leadership on climate, they have now released a carbon bomb in the Gulf of Mexico.”
Wednesday’s auction, originally expected in March, was put off after Biden ordered a pause in the sale of new oil and gas leases on federal land so the Interior Department could conduct a comprehensive review of the activity. The department announced plans to hold the delayed sale only after a Louisiana-based federal district court ruled against the moratorium and in the face of a potential contempt of court citation.
It’s not clear whether -- or when -- another Gulf oil auction may happen, though two more sales had been penciled in by an Obama-era five-year leasing program that expires next June.
Any future sales also are likely to come with less-generous terms. Pending tax-and-spending legislation in the House of Representatives would impose new fees and higher royalty rates on offshore oil development that would be embedded in future lease terms.
Chevron and Occidental Petroleum Corp.’s Anadarko US Offshore LLC were the most aggressive bidders, with Anadarko lodging the two highest offers -- $10 million and $6 million -- for two tracts south of Louisiana.
“Chevron is pleased with the results of the sale and looks forward to further evaluating our leases’ potential,” the company said in an emailed statement.
Overall, Anadarko lodged $39.7 million in high bids, according to bureau data. Other active bidding came from Shell Offshore Inc., BP Exploration and Production Inc. and Talos Energy Offshore LLC.
Exxon Mobil Corp., was the apparent winner of 94 shallow-water leases near the Texas coastline, in an apparent step forward for its planned carbon-capture hub near Houston’s industrial corridor.
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