The Bureau of Ocean Energy Management (BOEM) has issued its final notice for an oil and gas exploration lease sale to be held Mar. 29 for about 13,000 blocks covering 73.3 million acres in the federal waters of the Gulf of Mexico.
The notice, released Feb. 24, specifies that all bids for Lease Sale 259 must be received by BOEM via the US Postal Service or other parcel delivery services no later than 10 a.m. Central Time Mar. 28. The opening and reading of the bids will begin a 9 a.m. Central Time and will be accessible via a link on www.boem.gov.
Various safeguards required of operators will be in keeping with the obligations spelled out in the final supplemental environmental impact statement released in January. The sale was mandated by the Inflation Reduction Act, a compromise budget bill signed into law in August (OGJ Online, Aug. 12, 2022).
In keeping with that law, the royalty rate for the lease sale is set at 18.75%.
BOEM will not accept a bonus bid unless it provides for a cash bonus in an amount equal to or exceeding $25/acre in water depths less than 400 m and $100/acre in depths of 400 m or more.
The annual rental rate per acre will start at $10 for the first 5 years in water depths of less than 200 m and $16 for the first 5 years in water deeper than that. The rental rates will include escalation factors for years after the first 5, a strategy intended to push operators to start drilling rather than sit on leases. Royalties will apply to natural gas vented, leaked, or flared with exceptions for safety.
Welcome, caution
The federal offshore lease sale will be the first in the Gulf of Mexico since November 2021. President Biden had halted onshore and offshore federal lease sales until a federal court in June 2021 ruled the moratorium in violation of the Outer Continental Shelf Lands Act, the Mineral Leasing Act, and the Administrative Procedure Act.
The National Ocean Industries Association welcomed the latest announcement without rehearsing the oil and gas industry objections to the higher royalties and fees.
It remains to be seen how bidding will be affected by those higher costs. Oil and gas industry representatives have warned that if less oil production in the US is the result, it likely will mean more oil imports so long as demand remains unchanged. Biden and many Democrats in Congress have made it clear that they want to reduce demand by various means, including subsidies for electric vehicles and other alternative sources of energy.
Most recently, bp chief economist Spencer Dale said the market-disrupting impacts of war in Ukraine have reminded people of the importance of security and affordability in energy supplies and the value of shorter supply chains that can come with domestic energy production.
Dale, speaking Feb. 23 at the Center for Strategic & International Studies in Washington, DC, said the severe price spikes of 2022 for oil and gas after Russia’s invasion of Ukraine illustrated just how vulnerable the global energy system is to relatively small disruptions in the supplies of oil and gas.