The Latest Gulf of Mexico Lease Sale: How Strong Was it?

On June 20, 2012, the Department of the Interior announced the results of a 39 million acre oil and gas lease sale for the Central Gulf of Mexico.  56 energy companies submitted 593 bids on 454 tracts covering over 2.4 million acres.  Winning bids totaled over $1.7 billion.  Statoil of Norway established a new high for a single lease (since area-wide leasing began in 1983) with a $157 million offering.  Other companies with notable participation included Apache Deepwater, BP, Chevron, ExxonMobil, LLOG Exploration, Noble Energy, Sampson Offshore, Shell, and Stone Energy.

The Positives

The sale resulted in the fourth-highest total ever for the Central Gulf (companies pledged $3.7 billion in 2008).  In a press release, Interior Secretary Ken Salazar proclaimed that "the Gulf is back."  Louisiana Department of Natural Resources Secretary Scott Angelle, in a news release, hailed the results, saying "We have been telling federal regulators that companies have the desire and the resources to invest in the Gulf of Mexico."  Together with the December 2011 federal lease sale for the Western Gulf of Mexico, companies have now recently committed over $2 billion in Gulf of Mexico leasing.

Pent-Up Demand

Pent-up demand was often cited as one of the factors influencing the recent auction, with the Interior Department having postponed an auction scheduled for 2011 and then combining it with the 2012 auction.  Simmons & Co. International, comparing the six percent of available tracts that received bids in 2012 to the seven percent in 2010, said the sale was "less than robust [] with period-over-period comparisons down across the board."

The Pace of Permitting Remains an Issue

Angelle said that "recent progress we have made in improving the pace of permitting, although we are not yet where we want to be, is the best way to express confidence to the marketplace."  Louisiana Sen. David Vitter remarked that "Until we see a positive trend with lease sales and issuing drilling permits, no one should be remotely convinced that Washington's off-course energy policy is on the right track."  The post-Deepwater Horizon environment is still evolving, with the Interior Department pointing out:

Lessees will have to comply with a series of important environmental stipulations, including requirements to protect biologically sensitive features, as well as marine mammals and sea turtles, and employ trained observers to ensure compliance and restrict operations when conditions warrant.  These terms will help ensure an appropriate balance of responsible resource development with protection of the human, marine and coastal environments.

What happens now as the companies navigate through permitting and environmental/safety regulations while moving forward with developing their leases will no doubt have important ramifications for future auctions.

Two articles addressing the 2012 Central Gulf auction are found at the following links:

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