Oil and gas companies will have a shot at buying new drilling leases in the Gulf of Mexico this December — but this year, they will pay a higher price to participate in the sale.
The Bureau of Ocean Energy Management, Regulation and Enforcement confirmed today that it is raising the cost of buying the leases in the western Gulf of Mexico. According to the agency, companies will now have to pay minimum bids of $100 per acre, up from $37.50 per acre previously for most tracts in the Gulf. The minimum bid for leases in already well-explored shallower water depths, however, will remain unchanged at $25 per acre.
The fee increase – and other details of the sale – were formally unveiled by the ocean energy bureau today.
Obama administration officials said the increase was justified because historically, leases purchased for less than $100 per acre have not been rigorously explored or developed.
“Raising the minimum bid will discourage companies from purchasing leases they are unlikely to explore in the near time,” the ocean energy bureau said in a news release announcing the change.
“BOEMRE is proposing this increase in an effort to ensure that areas with the greatest resource potential are developed and to decrease the amount of leased acreage that is warehoused and goes unexplored,” said BOEMRE director Michael Bromwich in a statement. “The change in terms will better ensure that the nation’s resources are being developed in a timely manner.”
Although industry leaders have been waiting for the next offshore lease sale, they are unlikely to support the planned cost increase. The American Petroleum Institute and other industry trade groups have resisted the Obama administration’s proposals for new inspection fees — and higher taxes — for oil and gas companies.
One possible argument against the cost increase is that it would discourage aggressive bidding by oil companies on marginal tracts that may have fetched less than $100 per acre and lower the overall revenue from the sale. But the administration insisted that after its review of historical auction data, “the increase will have little to no adverse impact on the timing or magnitude of production from tracts in this sale.”
Interior Secretary Ken Salazar called the auction “an important step toward a secure energy future.” “Exploration and development of our western Gulf’s vital energy resources will continue to help power our nation and drive our economy,” Salazar added.
The lease sale — delayed because of last year’s oil spill — now will take place in New Orleans Dec. 14. Dubbed Lease Sale 218, it will cover all available unleased areas — 3,900 blocks covering 20.6 million acres — in the western Gulf planning area that is off the coast of Texas.
The National Ocean Industries Association, which represents more than 250 companies in the offshore energy sector, supported the government’s announcement.
“This sale marks a key step toward restoring American jobs,” said Randall Luthi, NOIA president. “We look forward to continuing to work with the agency in ensuring clarity and efficiency in the leasing and permitting process while safely providing the offshore energy resources that help fuel America and our economy.”
Erik Milito, the upstream director for the API, cheered the scheduling of the sale — the first of its kind since March 2010 — but was unenthusiastic about the proposed cost increase.
“We are hopeful that this does not discourage investment in these vital domestic resources,” Milito said. “We caution efforts that discourage investment in U.S. resources during this time of economic and regulatory uncertainty.”
However, environmentalists said the administration was moving hastily.
“Rushing this lease sale puts marine ecosystems at risk before the ink is even dry on the impacts of the BP spill,” said Jacqueline Savitz, senior campaign director for the ocean conservation group Oceana. “BOEMRE appears to be caving to intense pressure from the oil industry to return to ‘business as usual,’ without regard for the extraordinary risks to already imperiled marine animals.”
The ocean energy bureau put the western Gulf sale on hold in order to complete a new environmental analysis of the region that was spurred by the Deepwater Horizon disaster. The research updates an older environmental impact statement that was conducted before the Gulf spill.
The western Gulf sale that is queued up for December is generally viewed as less commercially attractive than a separate planned auction of deep-water tracts in the central Gulf region. That central Gulf planning area includes areas near the Macondo well that blew out last year.
Bromwich has previously confirmed that a sale of central Gulf leases is on track for the first half of next year — before the end of the current five-year plan that governs oil and gas leases on the outer continental shelf. That plan expires on June 30.