Does lease sale restore interest in Gulf oil?

06 22, 2012 by Houma Courier

Louisiana energy boosters contend this week’s record-setting federal lease sale is prompting oil and gas investors to bet heavily on the Gulf of Mexico’s central region.

The Bureau of Ocean Energy Management oversaw the sale Wednesday from the Mercedes-Benz Superdome in New Orleans and the resulting numbers paint an optimistic picture for the near future.

There were 593 bids submitted by 48 companies on 454 federally owned drilling tracts that brought in more than $1.7 billion. Statoil, a Norway-based energy firm, was behind a $157 million bid — the largest in more than 30 years — for a tract just south of Louisiana’s central coastline.

While the sale certainly set a record in regard to bid sizes, it was still off pace compared to other Gulf-area lease sales from just a few years ago. For example, a 2008 Gulf sale generated $9.4 billion for the U.S. treasury through new leases and another in 2010 attracted bids from 77 companies.

Still, this week’s sale does trump the $337 million that was collected in December, which was the first bidding process held for Gulf waters since the 2010 BP oil spill.

Lori LeBlanc, executive director of the Gulf Economic Survival Team, a nonprofit advocacy group, said she blames the long recovery on regulatory uncertainty on the federal level. But she also noted the renewed interest in the Gulf — in terms of dollars, it tops all similar sales held since 2009 — proves investors are willing to jump through more than a few hoops to get into the waters.

“Despite continuing bottlenecks in terms of extended review periods for plans, limited permits for unique wells designated to reach hydrocarbons, and an overall lack of predictability concerning permits for future operations, companies continue to bet on the vast potential of the Gulf,” LeBlanc said.

Meanwhile, the sale is being interpreted as something entirely different for other parties. Along the coast, it means an increase in revenues for restoration and protection projects, since the state constitution requires Louisiana’s share of federal drilling money be spent in that fashion.

For environmentalists, it translates into concern, especially considering it was the first sale for the central Gulf since the oil spill. In part, that’s why the Natural Resources Defense Council, in concert with the Southern Environmental Law Center, Oceana, Defenders of Wildlife and the Center for Biological Diversity, are suing to halt progress on the awarded leases.

They’re arguing the administration of President Barack Obama is moving forward without fully addressing the risks to wildlife and the environment. According to the lawsuit, the Bureau of Ocean Energy Management “dismissed the lessons learned” during the Deepwater Horizon disaster and failed to obtain essential information about the status of species and resources still suffering from the 2010 oil spill.

“Without new and fully tested procedures in place to guard against future blowouts and improve post-spill containment and cleanup systems we are risking a repeat of the BP disaster two years ago,” said David Pettit, senior attorney with the Natural Resources Defense Council. “Increased drilling and exploration coupled with possible new oil spills would wreak havoc on an ecosystem that has a tenuous grip on existence.”

Industry representatives like Cory Loegering, regional vice president for Apache Deepwater LLC, counter it has taken a long time just to get to this point. Moreover, he said the new regulatory environment makes it anything but easy to explore and produce in the Gulf of Mexico.

“Of course, the lease is only the first step in a process that requires regulatory approvals,” he said. “However, we are optimistic.”

State Natural Resources Secretary Scott Angelle said he has been leading up discussion to mediate issues between federal regulators and energy exploration companies. He said he’s trying to find a “regulatory middle ground” that ensures safe and responsible operations while allowing development of the resources that provide domestic energy and domestic jobs.

“We have been telling federal regulators that companies have the desire and the resources to invest in the Gulf of Mexico, and the recent progress we have made in improving the pace of permitting, although we are not yet where we want to be, is the best way to express confidence to the marketplace,” Angelle said.

Despite the remaining challenges, Chris John, president of the Louisiana Mid-Continent Oil and Gas Association, said this week’s news only serves to increase the value of the Gulf’s stock. He said there are estimates of up to 1 billion barrels of oil and 4 trillion cubic feet of natural gas undiscovered in the region that went up for sale Wednesday.

“The Gulf of Mexico has a strong future as an attractive investment area for drilling activity and today’s lease sale will create jobs and increase revenues for the state of Louisiana,” John said.

This lease sale will create thousands of jobs for rig workers and employees of offshore vessels, helicopter companies, hotels, restaurants and shopping centers, added Don Briggs, president of Louisiana Oil and Gas Association. As for the pending legal challenge, he said environmental groups have tried the same thing in the past but failed.

“The economic impact of this lease sale for Louisiana is massive, as a significant amount of these dollars will make their way back into the Louisiana economy,” Briggs said. “While the oil and gas industry is the engine that drives the Louisiana economy, the ripple effect from a lease sale like this one reaches far and wide beyond the acreage of the Gulf of Mexico.”