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Oil companies snag Gulf of Mexico waters for offshore drilling in last bid before Biden transition

Oil companies snag Gulf of Mexico waters for offshore drilling in last bid before Biden transition

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An Offshore oil drilling rig in the Gulf of Mexico.
The industry saw Wednesday’s auction as potentially the last opportunity to lease federal waters for offshore drilling in the Gulf of Mexico for the next four years. Credit: Getty Images/iStockphoto

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In the last opportunity for oil companies to bid on federal Gulf of Mexico waters under a Trump administration, the federal government on Wednesday leased more than a half-million acres to companies for offshore oil drilling and production.

The leasing event, livestreamed from New Orleans, comes as President-elect Joe Biden readies his transition — Biden promised during his campaign to ban new oil and gas leasing on public lands and waters as part of his clean energy plan to reduce the use of carbon-emitting fossil fuels, which contribute to climate change.

Members of the oil industry largely saw Wednesday’s auction as an opportunity they were unlikely to have for the next four years.

“They wanted to jump on it before the window potentially closes and there are more regulatory hurdles,” said Sami Yahya, a senior energy analyst for S&P Global Platts Analytics. The change in presidential administrations “is one of the top things operators have in mind.”

The Bureau of Ocean Energy Management said about 518,000 acres were leased during the auction for nearly $121 million in high bids. That exceeded the agency’s target of $100 million, said Mike Celata, Gulf of Mexico regional director for the bureau.

“These are clearly uncertain times, with COVID-19 and the low oil price,” Celata said. “I’m pleased, given everything that has happened, at the size of the sale. The Gulf has a long future [for oil production].”

Expectations for the sale were dim because of decreased global oil demand and low oil prices caused by the COVID-19 pandemic. Oil companies have struggled this year as the pandemic, combined with less faith from Wall Street investors, have left them strapped for cash.

“Back in the 2014 era, we used to have billion-dollar auctions,” Yahya said. “We’re really scraping the bottom of the barrel here.”

There were 105 bids placed during the Wednesday auction — a recovery from March when only 84 were placed, but down from 165 in August of 2019. The highest bids were placed by subsidiaries of European oil companies Royal Dutch Shell, Equinor and BP, all of which placed more than $17 million in bids, with Shell spending the most on Wednesday at $28 million. California-based Chevron put down $17 million in bids. A handful of Texas energy companies, including a subsidiary of Murphy Oil, which recently said it would relocate its headquarters to Houston from Arkansas, made smaller offers. Murphy placed $5.3 million in bids.

Agency officials declined to comment during a press conference on whether holding the lease sale was motivated by the incoming Biden administration’s stance on leasing federal lands and waters for oil production.

But, holding two auctions a year in the Gulf for the unleased 79 million acres of federal waters has been standard practice under Trump’s Bureau of Ocean Energy Management, typically holding one in March and another in August. This auction had been pushed back from August, officials said, due to COVID-19 (although Yahya said the delay was likely an effort to wait for oil prices to stabilize following the presidential election).

“Without commenting on proposed policy by incoming administration officials, our lease blocks are offered many times,” said Kate MacGregor, deputy secretary of the Department of the Interior. “These blocks have been offered time and time again.”

Environmental groups criticized the lease sale as a last-ditch effort by the Trump administration to favor the oil and gas industry instead of moving to transition the U.S. to forms of energy that are less carbon-intensive. They also warned of the risk of oil spills offshore, which can endanger the Gulf’s ecosystems.

“This lease sale is pouring fuel on the flames of climate change,” said Emma Pabst, a global warming solutions advocate with Environment Texas. “It’s steadily burning through what little time we have left to act.”

Disclosure: BP America and Equinor have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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