Oct. 31, 2012 09:16 PM


Last summer's Gulf lease sale was a sign of progress or just the opposite. Depends on who you ask.

At the end of the day, the June lease sale brought in more than $1.7 billion overall for the Treasury, and Statoil, a Norway-based energy firm, put up the money for an unforgettable $157 million bid - the largest in more than 30 years.

By Jeremy Alford

November 2012

At the end of the day, the June lease sale brought in more than $1.7 billion overall for the Treasury, and Statoil, a Norway-based energy firm, put up the money for an unforgettable $157 million bid - the largest in more than 30 years.

Prior to the memorable and historic lease sale that was held in June, it had been more than two years since the federal government allowed investors to bid on drilling blocks in the Gulf of Mexico.

That summer sale, however, definitely set a tone - that's something the administration of President Barack Obama and the oil and gas industry seem to agree upon. As for what kind of tone, that's an entirely different matter.

While feds cheer the sale as a sign that the Gulf is rebounding, many in the industry believe it's off track compared to years ago and they say plans for future lease sales are lacking.  

The recent summer sale held in June and overseen by the U.S. Bureau of Ocean Energy Management targeted blocks off the coasts of Alabama, Louisiana and Mississippi. It attracted 593 bids submitted by 48 companies on 454 federally owned drilling tracts.

At the end of the day, it brought in more than $1.7 billion overall for the Treasury, and Statoil, a Norway-based energy firm, put up the money for an unforgettable $157 million bid - the largest in more than 30 years.

The bids, including the losers, totaled $2.6 billion overall, capturing the attention of Gulf investors, but it wasn't record-setting. In 2008, a sale in the central Gulf produced an overall bidding value of $3.6 billion.

For the remainder of 2012 and the whole of 2013, there are only three other federal lease sales scheduled. They will represent the opening salvo of the leasing plan advanced by Obama's administration over the summer.

Erik Milito, group director of upstream and industry operations for the American Petroleum Institute, a trade advocacy group, says the plan will "restrict opportunities when it should be expanding them."

This is important to remember, he adds, because government projections predict that oil and natural gas will supply almost 60 percent of the nation's energy by 2035.

"The critical question is, where will we get it?" Milito asks. "Will we continue short-sighted policies that require us to import massive amounts, much from less stable, sometimes antagonistic countries? Or, will we adopt policies that allow us to develop at home more of our own plentiful resources?"

Obama's leasing plan calls for 12 Gulf lease sales over the next five years. It also outlines lease sales for Arctic waters as the Atlantic and Pacific coasts remain closed to oil and gas activity. A study conducted earlier this year by the Congressional Research Service, which provides policy and legal analysis to members of the House and Senate, found that Obama's plan offers the fewest number of leasing opportunities dating back to former President Jimmy Carter.

Lawmakers proposed plans to increase the lease count in the Gulf, but all faltered as Congress entered its traditional pre-election recesses.
Sen. David Vitter, a Republican from Metairie, says that the president's version would place a virtual moratorium on 85 percent of the nation's offshore areas.

"Obama's five-year lease plan for offshore production is only half of what the previous plan was," Vitter says.

The first lease sale under Obama's plan will be held Nov. 28 in New Orleans. It will offer more than 20 million acres offshore Texas for oil and gas exploration and development.

Bureau of Ocean Energy Management Director Tommy P. Beaudreau says the five year plan "makes more than 75 percent of recoverable energy resources in our oceans available for exploration and development, consistent with President Obama's commitment to continue to expand domestic energy production and reducing America's dependence on foreign oil."

Since Obama took office, domestic oil and gas production has increased each year, Beaudreau notes, with domestic oil production currently at an eight-year high and foreign oil imports now accounting for less than 50 percent of the oil consumed in America - "the lowest level since 1995."

To find out how Louisiana's offshore waters will fare next, investors will have to wait until March, 20, 2013, the second lease sale scheduled under Obama's plan. That sale will offer all unleased areas in the central Gulf, which likewise includes offshore Alabama and Mississippi.

Interior Secretary Ken Salazar, who oversees BOEM, says the areas could lead to the production of up to nearly 1 billion barrels of oil and 4 trillion cubic feet of natural gas.

"We are moving full speed ahead on the President's all-of-the-above energy strategy because the exploration and development of the Gulf of Mexico's vital energy resources will continue to help power our nation and drive our economy," Salazar says.

The sale that will include Louisiana will encompass about 7,250 unleased blocks covering approximately 38 million acres. The blocks are located from three to about 230 miles offshore, in water depths ranging from nine to more than 11,115 feet.

Details on the second sale of 2013 have not yet been released.

The current leasing sale plan is proceeding despite "red flags" that were raised by the Natural Resources Defense Council, Southern Environmental Law Center, Oceana, Defenders of Wildlife and the Center for Biological Diversity, which collectively challenged the plan in the courts.

The group argues that the administration is moving forward without fully addressing the risks to wildlife and the environment. According to the lawsuit, the Bureau of Ocean Energy Management "dismissed the lessons learned" during the Deepwater Horizon disaster and failed to obtain essential information about the status of species and resources still suffering from the 2010 oil spill.

Beaudreau says such concerns were taken into account. "With comprehensive safety standards in place, this sale will help us to continue to responsibly grow America's energy economy and reduce our dependence on foreign oil."

Jeremy Alford can be reached at jeremy@jeremyalford.com.


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