Western Gulf lease sale set for Aug. 28

Oil and gas companies will have a chance to buy drilling rights on more than 21 million acres in the western Gulf of Mexico during a lease sale in August.

The lease sale, formally scheduled on Wednesday for Aug. 28 in New Orleans, will come one year after an auction of similar western Gulf tracts that netted nearly $134 million.

Some 3,953 blocks spanning 21.2 million acres will be up for grabs in the auction, with water depths ranging from 16 to roughly 11,000 feet.

For the first time in years, companies will not be able to take advantage of a federal royalty relief program aimed at gas extracted from deep-water tracts purchased in the lease sale, since that provision is set to expire on May 3.

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And while companies will have a chance to bid on acreage near the international boundary dividing the U.S. and Mexico continental shelf, those offers may never be unsealed.

The area has been off limits for more than a decade. Although a Feb. 20, 2012 agreement between Mexico and the U.S. sets the framework for oil and gas development along that boundary, and the Mexican Senate ratified it last year, it has not yet been authorized by U.S. lawmakers. Instead, it has stalled on Capitol Hill.

The proposed notice of sale unveiled Wednesday includes details about the possible terms that will govern five-, seven- and 10-year leases purchased in the upcoming auction, as well as the environmental mitigation that energy companies would be required to follow.

Companies will be forced to pay a minimum bonus bid of $25 per acre (or fraction) for acreage in less than 400 meters of water and $100 or more per acre for blocks in deeper territory. Energy produced from the leases would be subject to an 18.75 percent royalty rate plus annual rental fees starting at $7 per acre for the shallowest territory — but increasing to as high as $44 an acre after eight years.

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The Interior Department’s Bureau of Ocean Energy Management has cast those terms as encouraging diligent development of leases while ensuring a fair return to taxpayers. Similar terms have been in place for several recent auctions.

This will be the second western Gulf sale — and the third auction altogether – since the Obama administration finalized its 2012-2017 offshore leasing schedule.

It’s also the first sale since former REI CEO Sally Jewell was sworn in as secretary of the interior. In a news release, Jewell described the Gulf of Mexico as “a cornerstone of the United States’ energy portfolio.”