U.S. Maps Potential Areas for Gulf of Mexico Drilling Auctions

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The U.S. government has outlined areas that could be included in a long-awaited lease sale for drilling rights in the Gulf of Mexico, but stressed delineation was not the same as sanctioning an auction.

The United States concluded its five-year lease plan to 2022 with lease sale 261 in December. The auction saw 352 bids from 26 companies, with high bids coming in at $382 million. That's a 45% increase over the previous auction in March.

On Monday, the Bureau of Ocean Energy Management (BOEM) filed a notice delineating areas that would be included in lease sales 262, 263 and 264.

Offshore production tends to fly under the radar relative to shale. Production from the U.S. territorial waters of the Gulf of Mexico accounts for about 15% of the nation's total, or nearly 2 million barrels per day (BBL/d). The rest--some 10 million BBL/d--comes from inland shale basins.

Offshore production sites are more expensive to build than onshore shale, the last decade's investment darling. But once they are up and running, they can turn profits at lower prices than other forms of production, according to consultancy Rystad Energy.

The price at which shale drillers break even is around $65 per barrel for West Texas Intermediate (WTI), the U.S. benchmark for the price of oil. WTI was trading around $84 per barrel early Monday.

The area in question covers territory extending east from the southernmost tip of Texas to roughly the Mississippi-Alabama border. BOEM stressed, however, that delineation is not the same as a lease announcement.

Delineation is not a decision, BOEM said, nor is it a prejudgment on how or whether to proceed with the next three lease sales. There will not be another lease sale until 2025.

After the December sale, Erik Milito, the president of the National Ocean Industries Association, said consistency was key to the offshore energy sector. The government has realized more than $120 billion in revenue from offshore lease sales since the late 90s and, without a reliable lease schedule, investors may go elsewhere.

"In our forward-thinking industry, securing new lease blocks is vital for exploring and developing resources crucial to the U.S. economy," he added. "Additional offshore acreage is necessary to sustain and expand energy production in a region known for among the lowest carbon intensity barrels globally."

Consultant firm McKinsey & Company attributes the low-carbon intensity to the lack of flaring, modern infrastructure that minimizes methane leakage and higher throughput, which helps reduce the energy needed for upstream operations.

Click on the image at right for a McKinsey & Company graph comparing Gulf of Mexico greenhouse gas emissions with other major sources of oil and gas.

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