Energy Business

Gulf of Mexico Leases Drop by 90% in 10 Years

Last November, the Department of Interior’s Bureau of Ocean Energy Management (BOEM) offered more than 80 million acres of the outer continental shelf in the Gulf of Mexico for oil and gas development. The sale was vacated by a federal district court due to a flawed environmental study. The case went to the appeals court in June, but a ruling has not been issued.

The results of the sale were reinstated in the Inflation Reduction Act that Congress passed last month. The bill also included three additional lease sales in the Gulf over the next year.

On Wednesday, BOEM announced that it had officially accepted 307 of the highest valid bids, totaling $189,888,271 for leases on approximately 1.7 million acres. A total of 33 companies participated in the bidding, and high bids totaled $191,688,984 (one bid was declared to be invalid).

In June of 2012, BOEM offered to sell 39 million acres in the Gulf and received bids from 56 companies, totaling just over $2.6 billion for 2.4 million acres leased.

Comparing the two sales implies a lot about the offshore oil and gas exploration business. The highest bid for a block in 2012 came from Statoil (Norway’s state-controlled oil company that now has a new name, Equinor). The company bid $157 million for a single block. The highest bid in last November’s auction was barely over $10 million. Equinor bid on one block and won the lease with a bid of $2.05 million.

The high bid in November came from the Anadarko subsidiary of Occidental Petroleum. Of the 10 single highest bids of the sale, Chevron made four, totaling about $15.9 million, and Anadarko made three, totaling about $19.5 million. No other company made more than one.

Exxon Mobil made and won 94 high bids, each for $158,400. Each winning bid included a tract of 5,760 acres for which the company must pay a royalty of 12.5% based on the amount of energy produced. Exxon spent $14.9 million on winning bids. Chevron made and won 34 high bids totaling $48.3 million.

The most obvious difference between the bids made 10 years ago and last year is the difference in the total value of the leases. In 2012, the average sale price per acre was around $1,040. In 2021, the lease sale price was around $113 per acre.

That could mean that the leases on offer last year are not expected to produce much, either because the estimated deposits are not very large or because oil and gas companies do not want to wager a lot of money on assets that eventually may be stranded.

Last November’s auction occurred before the Russian invasion of Ukraine threw the global energy market for a loop. The next sale will occur before the end of this year. Will the leases be more or less expensive? And who will be buying?

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