US judge cancels Gulf of Mexico lease sale results; Chevron 'disappointed'

Chevron's top executive said Jan. 28 he and other company leaders were "disappointed" with the decision of a US appeals court judge, who a day earlier vacated the results of the Biden administration's first oil and gas lease sale on climate concerns.

The most recent lease sale, held in November 2021, opened some 80 million acres of the Gulf of Mexico to development and would have generated large sums of money for the federal and state governments.

"We're reviewing this judicial decision right now. We're disappointed" in the judge's decision, Chevron CEO Mike Wirth said during the company's fourth-quarter earnings conference call. He declined further comment on it.

"These lease sales have been conducted successfully for decades now, and have resulted in us being one of the largest leaseholders [in the US Gulf] with over 240 leases," Wirth said. "We were the apparent high bidder on a large number of blocks there [in the November sale] that we found attractive."

In his late Jan. 27 ruling, Judge Rudolph Contreras of the US Court of Appeals for the District of Columbia Circuit said the Interior Department had failed to review new research on the impacts of oil and gas drilling and did not account for foreign consumption of US oil and gas supply in its calculation of greenhouse gas emissions.

Contreras remanded the Nov. 17 results of Lease Sale 257 back to the Interior Department to address errors in its environmental review.

"The Court does not specify how [the Bureau of Ocean Energy Management] must do so, on what timeline, or what ultimate conclusion it must reach, leaving those issues to the sound discretion of the agency," the Jan. 27 ruling said.

Future of US Gulf lease in doubt

The ruling throws into doubt the Biden administration's restart of federal oil and gas leasing after a nearly yearlong moratorium while the Interior Department studied the program's climate and fiscal impacts.

Asked why the Biden administration sought to restart oil and gas leasing despite its strong climate goals, White House press secretary Jen Psaki said Jan. 27 that its hands were essentially tied.

"A big part of that is because of court cases and legal challenges that have made it impossible for us to stop many of these leases and that's the reasoning for it," she said.

Wirth, echoing the sentiment of many prominent voices in the energy industry, said sales "contribute to energy security in this country," and added the US Gulf is a "strong" part of Chevron's base business. e were the apparent high bidder on a large number of blocks there that we found attractive.

The US Gulf produces about 1.8 million b/d of oil, and several significant oil deepwater developments are under construction, including the Chevron-operated Anchor Field sited 140 miles off the Louisiana coast, which should come online in 2024.

Also set to come online in 2024 is the Shell-operated Whale Field in the remote southern US Gulf. Shell holds 60% of Whale and Chevron owns 40%.

Chevron is also a partner in BP's Made Dog 2 development project, located 190 miles south of New Orleans, which is slated for first oil this year.

Rising energy prices

The Nov. 17 lease sale – the first federal auction under the Biden administration – generated nearly $192 million in high bids placed on 307 blocks. A total of 316 bids were placed, signifying there was not significant competition for acreage.

ExxonMobil bid for about 100 shallow-water blocks along the Texas coast as part of its carbon capture and storage plans. It has proposed a massive offshore CCS project that aims to capture 50 million mt/year of CO2 by 2030 and twice that amount by 2040.

After the lease sale, BOEM said that in the future it would "use updated greenhouse gas emission models to take substitution impacts and foreign oil consumption into account, resulting in the most robust projections ever of the climate impacts of offshore lease sales."

It also plans to analyze the "social cost of carbon to better understand the true impacts of fossil fuel leasing decisions."

National Ocean Industries Association, a trade group for offshore drillers, said the ruling comes as geopolitical uncertainty and soaring energy prices demonstrate the importance of US oil and gas production.

"Uncertainty around the future of the US federal offshore leasing program may only strengthen the geopolitical influence of higher emitting – and adversarial -- nations, such as Russia," NOIA President Erik Milito said in a statement.