Companies bid $264M in Gulf oil sale mandated by climate law

Gulf of Mexico Source: BP

Oil companies offered a combined $264 million for drilling rights in federal waters in the Gulf of Mexico on Wednesday in a sale mandated by last year's climate bill compromise.

The auction was the first in the Gulf 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 backed President Joe Biden in 2020 and were frustrated by this month's approval of a huge drilling project in Alaska.

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 50 years, according to a government analysis. Burning that oil would increase planet-warming carbon dioxide emissions by tens of millions of tons, the analysis found.

A legal challenge to the sale from environmental groups is pending in federal court.

Bids were up 38 per cent from the last auction and marked the most offered in a sale since 2017. Chevron USA was the top bidder, offering $108 million for 75 tracts. BP Exploration and Production had $47 million in high bids and Shell Offshore had $20 million in high bids.

The next Gulf lease sale is scheduled in September. It's unknown how many more the administration could conduct as it faces continued pressure over approval of the ConocoPhillips Willow project in Alaska.

The uncertainty means companies could be trying “to lease blocks now in case future auctions are restricted,'' said Sami Yahya, an analyst with S&P Global.

"From a global perspective, we are perpetually moving toward an environment with stronger anti-fossil fuel sentiment, as operators will continue to face more public scrutiny regarding emissions,” Yahya said.

The sale came two days before a deadline set in last year's climate bill. The bill also prohibits leasing public lands for renewable power unless tens of millions of acres are first offered for fossil fuels. That was a concession to West Virginia Democrat Sen. Joe Manchin, an industry supporter.

Manchin issued a statement saying the sale results showed the climate bill was “holding this administration's feet to the fire'' to continue fossil fuel production.

The parcels offered covered 114,000 square miles (295,000 square kilometers) an area larger than Arizona. Like past auctions of similar magnitude, only a fraction of the available acreage – about 2,600 square miles (6,700 square kilometers) – got bids.

Most tracts had only one bidder as the company offers were opened Wednesday in New Orleans, in a state that is economically dependent on the oil and gas industry and especially vulnerable to climate change.

ExxonMobil offered almost $10 million on 69 tracts in the northwest Gulf. The company in 2021 bid nearly $15 million for tracts in the same area. It includes shallow waters _ less than 656 feet (200 meters) deep – where oil has mostly played out.

The acquisitions are likely linked to Exxon's pursuit of a government-industry collaboration to capture and store carbon dioxide from industrial plants in the Houston Ship Channel, experts said.

“They purposely went out to lease property where the geology was right for storage and they knew any oil and gas production on a commercial scale was not a possibility,'' said Eric Smith, associate director of the Tulane Energy Institute.

All the leases sold Wednesday were for oil and gas only, federal officials said.

In coming months the administration plans to auction more than 500 square miles (1,400 square kilometres) of onshore oil and gas leases in Wyoming, New Mexico, Montana, Nevada and other states.

© 2023 The Canadian Press

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