By: Reuters – A U.S. government auction of oil and gas drilling rights in the Gulf of Mexico generated $263.8 million in high bids, the most of any sale in the region for years and the first test of demand for investment since the Russian invasion of Ukraine.
The Bureau of Ocean Energy Management (BOEM) offered 73.4 million acres in the U.S. Outer Continental Shelf (OCS) in the Gulf. Bids were read at a live-streamed event on Wednesday morning, with Chevron Corp (CVX.N), ExxonMobil Corp (XOM.N), and BP Plc (BP.L) among the top buyers.
The auction fulfills a provision in President Joe Biden’s 2022 climate change law, the Inflation Reduction Act (IRA), that protects federal oil and gas leasing and requires that a Gulf sale be held by March 31.
It was the first in the oil-rich region since late 2021.
During his presidential campaign, Biden had pledged to end new leasing as part of his goal to decarbonize the U.S. economy by 2050. The United Nations has warned that the world needs to speed up its transition away from fossil fuels to avoid the most extreme effects of climate change.
But Biden has faced pressure to increase domestic supplies of oil and gas to reduce price spikes and boost energy security.
The auction’s high bid total was the largest since a 2017 sale in the Central Gulf area garnered $274.8 million, but the price per acre on Wednesday of $157 was about half what companies paid six years ago.
Energy research firm Wood Mackenzie said the results demonstrated optimism for development in the region.
About 2.3% of the acreage offered received bids from more than two dozen companies. Of the 313 tracts that received bids, just 30 received two or more bids.
Environmental groups including Earthjustice and Friends of the Earth said the government was prioritizing the oil and gas industry above the nation’s climate goals and the health of Gulf coast communities.
An oil and gas industry group, the National Ocean Industries Association, said the sale “is an opportunity to strengthen our national security interests and develop domestic energy supplies in the face of geopolitical uncertainty and tight global demand.”
Chevron was the auction’s biggest spender with nearly $108 million in high bids for 75 tracts. It also made the auction’s highest offer of $15.9 million for a tract in the Keathley Canyon deepwater area. The U.S. oil major said it was pleased with the sale results.
Exxon (XOM.N) snapped up 69 shallow water blocks near the Texas coastline, spending $9.8 million in total. Analysts have said the company may be preparing for a carbon capture and storage project.
The company on Wednesday said only that it was “evaluating the seismic and subsurface geology for future commercial potential.”
The leases are for five- or 10-year terms, depending on water depth, and carry royalty rates of 18.75%, a maximum established in the IRA. The rate is an increase for shallow water leases, which in recent sales were offered with a royalty rate of 12.5%. The IRA raised the minimum royalty rate for offshore leases to 16.67%.
The Gulf of Mexico accounts for 15% of U.S. oil production and 1% of natural gas production, according to BOEM. Production in the region is expected to keep growing through 2027, according to a 2022 BOEM forecast.