U.S. first offshore lease sale under new 5-year program yields $121M in high bids

Image source: BOEM (Illustration)

The first offshore lease sale under the U.S. National Outer Continental Shelf (OCS) Oil and Gas Leasing Program for 2017-2022 was held on Wednesday, August 16, yielding over $121 million in high bids on 508,096 acres in the Gulf of Mexico. 

The Lease Sale 249 was livestreamed from New Orleans on Wednesday. The U.S. Secretary of the Interior Ryan Zinke announced that the region-wide Gulf of Mexico lease sale generated over $121.1 million in high bids for 90 tracts covering 508,096 acres in federal waters of the Gulf of Mexico. A total of 27 companies participated in the sale, submitting 99 bids totaling $137,006,181.

According to the U.S. Department of the Interior (DOI), the sale offered the largest amount of acreage in the history of the federal offshore program in the Gulf, including parcels offshore Texas, Louisiana, Mississippi, Alabama, and Florida.

“The path to American energy dominance starts in the Gulf, and the hard work of rig and platform workers, support staff onshore, and the industries that support them cannot go unnoticed,” said Zinke. “Today’s results will help secure their jobs and create more good paying jobs while generating $121 million in revenue to fund everything from conservation to infrastructure.”

Under this program, nine additional region-wide lease sales that combine all three planning areas are scheduled for the Gulf, where resource potential and industry interest are high, and oil and gas infrastructure is well established.

On June 29, President Donald J. Trump and Secretary Zinke announced a public comment period for a new National OCS Oil and Gas Leasing Program for years 2019-2024. The comment period is the first step in executing the new program. The 2017-2022 Program, which begins with the lease sale held on Wednesday, will continue to be executed until the new National OCS Oil and Gas Leasing Program is complete.

Lease Sale 249 offered approximately 76 million acres offshore Texas, Louisiana, Mississippi, Alabama, and Florida for oil and gas exploration and development. It included 14,220 unleased blocks, located from three to 231 miles offshore, in the Gulf’s Western, Central and Eastern planning areas in water depths ranging from nine to more than 11,115 feet (three to 3,400 meters). Excluded from the lease sale are blocks subject to the Congressional moratorium established by the Gulf of Mexico Energy Security Act of 2006; blocks that are adjacent to or beyond the U.S. Exclusive Economic Zone in the area known as the northern portion of the Eastern Gap; and whole blocks and partial blocks within the current boundary of the Flower Garden Banks National Marine Sanctuary.

The DOI noted that the lease sale terms include stipulations to protect biologically sensitive resources, mitigate potential adverse effects on protected species, and avoid potential conflicts associated with oil and gas development in the region.

Additionally, the DOI said, the Bureau of Ocean Energy Management (BOEM) has included appropriate fiscal terms that take into account market conditions and ensure taxpayers receive a fair return for use of the OCS. These terms include a 12.5 percent royalty rate for leases in less than 200 meters of water depth, and a royalty rate of 18.75 percent for all other leases issued pursuant to the sale. The 12.5 percent royalty rate for leases in less than 200 meters is lower than the proposed 18.75 percent royalty rate for shallow water leases that BOEM published in the Proposed Notice of Sale.

The estimated amount of resources projected to be developed as a result of the region-wide lease sale ranges from approximately 0.21 to 1.12 billion barrels of oil and 0.55 to 4.42 trillion cubic feet of gas. Most of the activity, up to 83% of future production, of the proposed lease sale is expected to occur in the Central Planning Area.

As of August 1, 2017, 15.9 million acres on the U.S. OCS are under lease for oil and gas development (2994 active leases) and 4.3 million of those acres (870 leases) are producing oil and natural gas. More than 97 percent of these leases are in the Gulf of Mexico; about 3 percent are on the OCS off California and Alaska.