1 of 2 | Energy companies can now bid more the rights to drill in more than 70 million acres of the Gulf of Mexico, a lease that follows a controversial decision to approve new drilling in Alaska. File photo by Jim Ruymen/UPI |
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March 29 (UPI) -- Would-be drillers are weighing prospects for a chance to work offshore in the Gulf of Mexico as the next auction for the Biden administration got underway on Wednesday.
Provisions in last year's Inflation Reduction Act mandated Lease Sale 259, which opened up more than 70 million acres of maritime acreage to potential drillers across 13,600 blocks.
The latest federal data show the Gulf of Mexico produces around 1.7 million barrels of oil per day, compared with about 12 million bpd for the entire country. Total gas production accounts for about 15% of the national total.
Apart from mandating the lease, provisions in the IRA raise royalty rates from 12.5% to as high as 18.75%, with revenue going to various governments.
While paling in comparison to the oil and gas found in the inland shale basins, energy companies are still keen on tapping new reserves offshore. Shell and its Norwegian counterpart Equinor started production earlier this year at the Vito floating production facility in the Gulf of Mexico.
Shell estimated peak production would be around 100,000 barrels of oil equivalent per day.
Equinor added the platform itself was reconfigured so that costs would be 70% lower than initially expected and emissions would be 80% lower over its expected lifetime.
President Joe Biden entered office by enacting a moratorium on new drilling, though political pressure and energy concerns emanating from the war in Ukraine forced something of an about-face.
Wednesday's lease follows Biden's controversial decision to greenlight the Willow oil project in the Alaskan tundra, though the administration is also planning its first-ever lease sale in the Gulf of Mexico for wind energy developments.
Supporters of offshore oil and gas add that U.S. deepwater production is among the lowest in the world in terms of carbon intensity. Unlike inland shale deposits, meanwhile, offshore developments have longer lead times and are therefore less vulnerable to volatility in the global commodities trade.
Bob McNally, the president of the Rapidan Energy Group, told CNN that investors may be sitting on the sidelines, however, because of an uncertain economic future.
"The main reason oil investors are and have been reluctant to invest -- I would say 80% of it, has to do with these fundamental issues," McNally said. "It's not because Joe Biden said there's no [new] leasing. The political factor is there, but it's not the main reason holding them back."
U.S. majors Chevron and Exxon Mobil were among the more prolific bidders during the last auction in 2021, when Chevron bid as much as $4.4 million for drilling rights offshore.