Companies bid millions to tap Western Gulf

Published 3:46 pm Thursday, August 21, 2008

Energy companies bid hundreds of millions of dollars Wednesday to explore for oil and natural gas beneath 1.8 million acres in the western Gulf of Mexico, while looking forward to the possibility of future drilling in federal waters now off-limits.

The results of the first lease sale since offshore drilling emerged as a key campaign issue after gasoline prices topped $4 a gallon only muddied the waters as to how much politics can really influence oil production, and by extension, energy prices.

While firms bid $487.3 million to win the rights to drill 319 tracts of the Gulf, most in deep water, 90 percent of the area put up for sale Wednesday did not receive a single bite. Most of the leases purchased came with 10-year terms, unlikely to influence prices now.

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The highest bid of the 47 received Wednesday — $61 million — came from StatoilHydro USA, a subsidiary of the Norwegian oil giant. Exxon Mobil Corp., which has been relatively inactive in the Gulf in recent years, posted the most winning bids. The company plans to spend $127.3 million to explore 130 tracts.

Chevron USA Inc. was the second biggest spender Wednesday — paying $127.2 for the rights to drill in 20 tracts — a day after Republican presidential candidate John McCain visited one of its offshore platforms.

“This is where we have found success and we are the clear leader,” said Chevron spokesman Mickey Driver. “We came here to win and we are leaving winners.”

The Bush administration used the occasion to push for more domestic energy production, and to point out that attempts to force companies to drill on federal lands already leased don’t work.

“Much more needs to be done to create the access necessary for the oil industry to do what it does best and develop this country’s resources to secure our energy security,” said Interior Secretary Dirk Kempthorne, who unsealed the first bid at a downtown New Orleans hotel Wednesday morning.

In March, the Interior Department held the first-ever lease sale for an area of the eastern Gulf Congress opened up for drilling in 2006. The bidding five months ago was tame, with companies spending $64.7 million to drill 36 tracts. Officials said part of the problem was the uncertainty surrounding how much oil and gas is actually there. Without that information, companies are reluctant to invest millions exploring a region.

The same problem exists for the areas Congress may consider opening when it returns in September.

A proposal by a group of five Republican and five Democratic senators — the so-called “Gang of 10” — would allow Virginia, Georgia, North Carolina and South Carolina to opt into leasing programs starting 50 miles off their shores. The plan also would require the Interior Department to do an inventory of offshore resources, starting in those four states.

Those areas as well as the rest of the Atlantic and Pacific seaboards, and parts of the eastern Gulf of Mexico, have been under a drilling moratorium since the early 1980s. President Bush lifted the executive ban on those areas in June, but a congressional moratorium still exists.

Offshore wells now provide 27 percent of the nation’s domestic oil. Areas now off-limits to drilling may contain much more than the 18 billion barrels of oil and 73 trillion feet of natural gas now estimated to be there, Kempthorne said. Those estimates are based on exploration done over 25 years ago with outdated technology.

North Dakota Senator Kent Conrad, the leading Democrat in the Gang of 10, said Wednesday that the Gulf cannot be used to predict what happens when new territory is opened up, including the eastern Gulf.

“I would guess that these leases are pretty well picked over,” Conrad said of the tracts offered Wednesday. “You have a richer opportunity in a place that has not been previously developed.”

Those present at the lease sale in New Orleans said there was excitement about other areas opening up, but that likely did not influence how companies bid Wednesday.

“Companies are recognizing a movement afoot, but I’m not sure this sale says much about that,” said Tom Fry, president of the National Ocean Industries Association, which follows offshore drilling.

On the Net:

Gulf of Mexico Outer Continental Shelf Region of the Minerals Management Service: