In what will be the final lease sale under the existing five-year Outer Continental Shelf plan, Interior Department last Thursday said it would make available to producers in June all unleased areas in the Central Gulf of Mexico (GOM) Planning Area offshore Louisiana, Mississippi and Alabama, including 7,276 blocks on about 38.6 million acres.
Ironically, the lease sale announcement came only two days after the Obama administration released a report admonishing oil and natural gas producers for failing to quickly develop the leases they have. More than 70% of offshore acres leased to oil and natural gas producers are inactive, while 56% of onshore leases on public lands are not being used, according to an updated report from the Department of Interior.
The Central GOM lease sale notice includes a "range of incentives" to encourage prompt development of the reserves and ensure a fair return to taxpayers. The measures include "escalating rental rates and tiered durational terms with relatively short base periods followed by additional time under the same lease if the operator drills a well during the initial period," the department said.
Of the total 35.8 million acres leased in the offshore, the Obama administration report estimated that 25.7 million are inactive, and only 10 million are actively producing. Most of the acreage (31.86 million) has been leased in the GOM, which also happens to be where there are the largest number of inactive leased acres (22 million), according to the report.
In the Lower 48 states, an additional 20.8 million acres, or 56% of onshore lease acres, remain idle, about the same as last year, and there are close to 7,000 approved permits for drilling on federal and Native American lands that have not yet been drilled by companies, the Interior report said.
"These lands and waters belong to the American people, and they expect those energy supplies to be developed in a timely and responsible manner and with a fair return to taxpayers," said Interior Secretary Ken Salazar.
The Bureau of Ocean Energy Management (BOEM) also has increased the minimum bid in the deepwater to $100 per acre from $37.50. According to the Interior Department, an analysis over the last 15 years of lease sales in the GOM showed that deepwater leases that received high bids of less than $100 per acre, adjusted for energy prices at the time of each sale, experienced virtually no exploration and development drilling.
BOEM estimates that the Central GOM sale could result in the production of more than 1 billion bbl of oil and more than 4 Tcf of natural gas. The blocks up for grabs in the auction are from three miles to about 230 miles offshore in water depths ranging from nine feet to more than 11,115 feet in the Central GOM, a region that BOEM estimates contains close to 31 billion bbl of oil and 134 Tcf of gas reserves that currently are undiscovered and technically recoverable.
The sale would be the first in the Central GOM since the Macondo blowout and Deepwater Horizon platform explosion in April 2010, which killed 11 men.
Groups representing producers said the administration's report on idle leases was a smokescreen designed to distract the public from the real energy issues -- such as restricted access to public lands and permitting for oil and gas development. Administration supporters said it was aimed at proving that industry, not government was the one tying up development. Some companies have boasted in earnings reports that they have leased acreage that will provide them 30 years of work.
The Independent Petroleum Association of America (IPAA) said oil and gas producers "pay for the right to explore on leased land, as well as [pay] rental fee. The government is not losing money," the IPAA said. "Leases don't come with MapQuest directions that say 'drill here for 50 million bbl.' Companies do develop their leases, but producing oil and natural gas requires many steps; gathering funding, exploring, getting permits, drilling and finally producing the oil or natural. [And then they] have to be able to transport it to market. The entire process can take years."
The report is sure to provide ammunition for Democrats, who have in the past tried to pass legislation that would compel the industry to either drill or lose their leases. House Democrats have accused the industry of "stockpiling" leases and previously said operators have enough acreage to produce an additional 4.8 million b/d of crude oil and 44.7 Bcf/d of gas.
The Central GOM lease sale is scheduled to take place on June 20 at the Mercedes-Benz Superdome in New Orleans.
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