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Biden – yes, Biden – is offering oil companies leases to drill in the Gulf of Mexico

© Supplied by BPBP producing oil 2050
BP's Na Kika platform in the Gulf of Mexico. Supplied by BP Date; 26/10/2021

The Biden administration is selling drilling rights across the Gulf of Mexico on Wednesday in an auction that will test the oil industry’s appetite amid White House efforts to shift away from fossil fuels.

The sale will take place despite pleas from environmental activists for its cancellation, since leases sold in the auction could yield decades of crude they say a warming world cannot afford to burn.

The auction is unlikely to help President Joe Biden tame rising oil and gasoline prices that have set off political alarms at the White House. Leases sold Wednesday might only lead to oil production in five to 10 years — if they yield any, since discoveries aren’t guaranteed.

There were signs Tuesday that pent-up demand and the prospect of few auctions in the future were spurring participation. At least 29 companies submitted sealed bids for 307 tracts to be opened at Wednesday’s auction, according to Interior Department data. That compares to 23 companies that vied for just 93 tracts in the last sale of Gulf leases last November.

Unlike most current onshore projects — which can yield oil for a few months — conventional Gulf wells target large reservoirs of crude, with the potential for decades of production. And it takes time for that production to come online, said Erik Milito, head of the National Ocean Industries Association, a trade group.

“The production we have today offshore is because of decisions to allow leasing in prior years,” Milito said. “We have to have a long-term view toward our nation’s energy security and make decisions today to ensure that we are most effectively helping the consumer tomorrow.”

Wednesday’s auction, which was originally expected in March, was put off after Biden ordered a pause in the sale of new oil and gas leases on federal land so the Interior Department could conduct a “comprehensive review” of the activity. The department announced plans to hold the delayed sale only after a Louisiana-based federal district court ruled against the moratorium and in the face of a potential contempt of court citation.

Environmental activists have pushed the administration to cancel the sale anyway, arguing the auction clashes with U.S. commitments to slash greenhouse gas emissions that Biden reinforced during the just-concluded COP26 climate summit in Scotland.

“Selling more than 80 million acres in the Gulf of Mexico for oil and gas development just days after the international climate talks makes a mockery of those commitments,” more than 260 environmental, business, indigenous and other groups in a letter to Biden.

White House Press Secretary Jen Psaki on Monday said the Justice Department has appealed the June court ruling against Biden’s leasing pause but is “required to comply with the injunction” in the meantime. “It’s important for advocates and other people out there who are following this to understand that it’s not aligned with our view, the president’s policies or the executive order that he signed,” she said.

It’s not clear whether — or when — another Gulf oil sale may happen, though two more auctions were anticipated under a five-year leasing program created by the Obama administration before the program expires next June. That could drive more interest from oil companies in locking up leases that are valid for at least 10 years.

“Sales have been few and far between, and we have no idea when the next one’s going to be,” said Kevin O’Scannlain, an American Petroleum Institute vice president.

The auction also may be the final opportunity for oil companies to snag Gulf drilling rights under relatively friendly terms. The House climate-and-spending package would impose a series of new fees on offshore oil leases while increasing the royalties charged for oil and gas production along the U.S. Outer Continental Shelf.

“These are probably going to be the last leases sold under these terms, so they may be the last, best chance to buy an old-school federal lease,” said Kevin Book, managing director of the ClearView Energy Partners research firm. “But even if you can get an old-school lease, if you have a new set of restrictions on future lease purchases, is it worth buying?”

Even with leases in hand, companies still must seek drilling permits at the sites and win government approval for any future oil and gas production programs there. The Biden administration has already telegraphed a more cautious approach, and concern about obtaining those required authorizations could tamp down bids.

“You’re not really buying a lease, you’re investing in a program of development,” Book said. “And if the program is going to be limited by future regulatory action then it might not be worth the investment.”

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