Feds offer details on western Gulf lease sale

10 25, 2012 by Fuel Fix

The Obama administration today rolled out more details on its Nov. 28 auction of drilling rights in the western Gulf of Mexico, when oil and gas companies will have a chance to snap up more than 20 million acres.

The lease sale is set to be the first under the administration’s new five-year plan governing offshore lease sales until June 30, 2017, coming ahead of the more attractive central Gulf auction slated for March 20, 2013.

In an election year, no energy policy development comes without fanfare.

The Interior Department touted the progress toward the November sale as evidence of President Barack Obama’s “commitment to a comprehensive, all-of-the-above energy strategy,” which Interior Secretary Ken Salazar said was “creating jobs here at home while reducing our dependence on foreign oil.”

According to the Interior Department’s Bureau of Ocean Energy, the areas up for leasing could yield 116 million to 200 million barrels of oil and 538 billion to 938 billion cubic feet of natural gas.

Up for grabs in the auction will be all available unleased areas in the Western Gulf of Mexico Planning Area, which encompasses some 3,900 blocks and 20.8 million acres.

Some of the available tracts are nine miles from the coast, while others stretch to 250 miles offshore, with water depths ranging from 16 to more than 10,975 feet.

The government traditionally holds open lease sales in the Gulf of Mexico, with companies getting a shot at most unleased acreage. By contrast, Obama’s Interior Department is taking a different approach in other areas, including the Arctic, where federal officials will decide what specific tracts are up for sale after taking nominations from potential bidders, hearing from stakeholders and assessing data.

In a statement Thursday, BOEM Director Tommy Beaudreau described the November sale as “part of the regionally tailored approach.”

The final notice of sale details unveiled Thursday include the terms that will govern five-, seven- and 10-year leases purchased in the upcoming auction, including environmental mitigation that energy companies would be required to follow.

Companies will be have to pay a minimum bonus bid of $25 per acre (or fraction) for water depths less than 400 meters and $100 or more per acre for greater water depths. Energy produced from the leases would be subject to an 18.75 percent royalty rate.

While the terms of the November sale roughly track the last western Gulf lease auction in December 2011, the region has been affected by developments governing oil and gas activity along the U.S.-Mexico continental shelf boundary.

A 10-year moratorium on drilling within 1.4 nautical miles of either side of that maritime boundary was initially set to expire in January 2011 but was extended until January 2014. Companies will be able to submit bids for blocks in the area subject to U.S.-Mexico talks, but they won’t be opened during the November sale, and they may never be opened at all.

According to the government’s sales package, the Interior secretary “will determine whether it is in the best interest of the United States either to open bids for boundary area blocks or to return the bids unopened” by May 31 or within 30 days after Congress approves a U.S.-Mexico agreement governing the area (whichever happens first).