Will they or won’t they? Feds’ lease sale may be pushed back

The future of a planned March sale of offshore drilling leases in the Gulf of Mexico is in doubt because of the federal government’s plans to first conduct a lengthy environmental study of the region.

The environmental analysis — formally announced this week — is expected to take about six months to complete, a timeline that means it is unlikely to be concluded before March.

Although the Bureau of Ocean Energy Management, Regulation and Enforcement has not announced any delay in the planned lease sale covering offshore tracts in the central Gulf of Mexico, oil industry lobbyists and analysts said it is unlikely to go forward.

Analysts at FBR Capital Markets predicted the March lease sale “is likely to be canceled” as a result of the study and the offshore energy bureau’s work vetting new drilling permits and drafting new safety rules.

“The agency faces significant workload on other offshore regulation, including permitting and public comment period requirements,” FBR Capital Markets analysts said.

Michael Olsen, a lawyer with Bracewell & Giuliani who previously spent five years working for the Interior Department, noted that “normally, these things take several months to do.”

“It would be pretty tough to get it done in (time),” Olsen added.

The government’s environmental impact study is designed to assess the potential effect of drilling in the Gulf of Mexico in light of the deep-water well blowout and oil spill earlier this year. The last similar study was conducted long before the April 20 Deepwater Horizon explosion that killed 11 workers and triggered the oil spill.

“This (environmental impact study) is a vehicle for BOEMRE, other government scientists and the public to gather and consider new information obtained and analyzed as a result of the Deepwater Horizon blowout and spill,” said Michael Bromwich, the bureau director in announcing the plan.

Bromwich said the fresh assessment would allow his agency “to make objective, science-based decisions about the activities involved in offshore energy exploration, development and production.”

Under the government’s current five-year plan for drilling on the outer continental shelf — which runs through June 30, 2012 — the ocean energy bureau was slated to conduct three more sales in the Gulf of Mexico, beginning with the one in March. A lease sale in the Western Gulf of Mexico is also expected later in 2011, followed by a sale of leases in the Central Gulf of Mexico in early 2012.

Bromwich said in an interview Tuesday that an upcoming “filing” would shed light on the future of the sales.

But the government may have tipped its hand with its formal announcement of the environmental impact study, which lays the groundwork for the upcoming sales.

The notice published in the government’s Federal Register on Wednesday specifically named two of the remaining three sales — and omitted the one planned for March. To analysts and industry advocates in Washington, that signaled the March sale was off.

The government swiftly revised that notice, and the announcement published a day later did not specifically name any lease sales.

Olsen said the change gives the government more flexibility and preserves the appearance, at least, that the March sale is still on track.

The first environmental study notice, published Nov. 10:
First Seis Notice 2010-28355

The revised environmental study notice, published Nov. 11:
Second Seis 2010-28868_PI