An oil and gas drilling rights auction in the Gulf of Mexico has fetched the US government $263.8 million in bids, which happens to be the most of any sales across the region in years. This is also the first test of investment demand since the Ukraine war began.
As a matter of fact, the Bureau of Ocean Energy Management offered 73.4 million acres of the US Outer Continental Shelf (OCS) across the gulf region. The best part was that the bids were streamed live via an event on March 29 morning.
This auction goes on to fulfil a provision of the climate change law, the inflation reduction act (IRA) rolled out by President Joe Biden in 2022 that secures federal oil and gas leasing, and would have wanted that the Gulf sale be held by March 31, which did happen.
It is well to note that the auction happened to be the first in the oil-rich region since 2021. The high-bid total went on to be the largest since 2017 sales that took place in the Central Gulf area, which went on to garner $274.8 million.
Significantly, it was Chevron that was among the highest spenders in the auction that took place on March 29, with numerous bids for deepwater tracts worth millions of dollars. Overall, the company made a bid of $15.9 million across the tract of the Keathley Canyon region.
On the other hand, Exxon snapped up over 60 shallow water blocks that were near the Texas coastline. As per the analysts, the company might as well be preparing for a project based on carbon capture and storage.
On March 29, Exxon confirmed that they are analysing the seismic data as well as the subsurface geology for any commercial potential that may be a possibility in the future. Shell Plc, Hess Corp, Equinor ASA, and BP Plc were the other winners of the bid.
Before the passage of the IRA in 2022, the administration had gone on to cancel three planned offshore lease bids across the Gulf as well as Alaska because of a lack of interest from the industry and also because of conflicting litigation that took place on the president’s leasing policy.
These leases happen to be for a term of 5 to 10 years, depending on the depth of the water, and also have royalty rates of 18.75%, which are, by the way, the maximum as established by the IRA. The rate happens to be an increase for shallow water leases, which, as per the recently concluded sales, were offered with a royalty of 12.5%. The IRA raised the minimum rate of royalty when it came to offshore leases to 16.67%.
President Biden, apparently, had pledged to end new leasing all throughout his presidential campaign as part of his objective to make sure that the US economy decarbonizes by 2050 and also thwart global warming. But he has been consistently witnessing pressure to elevate the domestic supplies of oil and gas, to take care of the price spikes, and to boost energy security too.
Significantly, the Gulf of Mexico accounts for 15% of the total US oil production and also 1% of the natural gas production as per US BOEM. The production across the region is anticipated to keep growing all the way through 2027, as per a 2022 BOEM prediction that has assumed that the leasing will keep taking place.