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Carbon capture plays prominent role in latest Gulf lease auction


ExxonMobil bids on 94 shallow-water tracts

Auction confirms Gulf's carbon capture potential

  • Author
  • Brandon Mulder
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  • Richard Rubin
  • Commodity
  • Coal Natural Gas Oil
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  • United States

Carbon capture and storage played a large role in Lease Sale 257, which recorded a bumper crop of bids from oil and gas producers Nov. 17 for drilling rights in the US Gulf of Mexico.

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Of the 317 bids the Bureau of Ocean Energy Management received – the highest since 2014 – about 140 of them were for tracts located in shallow waters of the Texas and Louisiana coast, inexpensive areas with depleted oil and gas reserves.

"The oil and gas reserves in those areas are pretty much tapped out at this point, so it's hard for me to imagine a company going in there with the idea of producing more oil and gas," said Hugh Daigle, a petroleum researcher and professor at the University of Texas. "This is probably a CCS push."

The largest bidder for shallow-water tracts was ExxonMobil, which placed bids on 94 tracts worth $158,000 apiece, according to BOEM data. The company's tracts are clustered in the Brazos Area, the Galveston Area and the High Island Area – locations in close proximity to the company's announced $100 billion CCS hub that will be located in southeast Texas.

ExxonMobil didn't confirm whether the 94 tracts it placed bids on will be used for CCS. In a Nov. 18 statement to S&P Global Platts, the company said it "will work with the Department of the Interior on plans for the blocks once they are awarded."

"ExxonMobil takes a long-term business view. We will evaluate the seismic and subsurface geology for future commercial potential," it said.

Other shallow-water tracts that received bids from companies were located off the coast of Louisiana, close to large onshore sources of CO2 emissions and existing transportation infrastructure.

The Gulf CCS push indicated by the shallow-water bids should come as no surprise considering investors' increasing focus on environmental standards and the growing number of net-zero commitments amongst traditional oil and gas companies. Earlier this year the Wall Street Journal reported that ExxonMobil is considering a 2050 net-zero pledge but has yet to make a firm commitment.

"This is the first big lease sale in the Gulf of Mexico that has come after a lot of these companies have made various carbon commitments," Daigle said. "And in light of that, it's probably not surprising that you're starting to see some of these leasing decisions being driven not just by oil and gas production, but by other economic interests of the company."

Conventional development attracts most dollars

But oil and gas production remained the top priority for bidders. The biggest spenders during Lease Sale 257 were companies interested in conventional oil and gas development in deepwater tracts.

The highest bid came from Anadarko, which offered $10 million for a deepwater tract. Talos Energy, a company that has recently been expanding its CCS business, bid a total $4.8 million on 10 deepwater tracts for conventional production. Chevron, BP and Shell also bid a collective $95 million on deepwater acreage.

"They all acknowledge that oil production is still going to be a part of what they're going to be doing in terms of supplying energy – even those companies that have made big net-zero commitments," Daigle said.

The CCS attention indicated by Lease Sale 257 also further confirms the Gulf of Mexico's potential for becoming a global hub for CCS activity thanks to an abundance of geologic saline aquifers ideal for permanent carbon sequestration.

"There is huge opportunity that really spans the entire Texas Gulf Coast," said CEO Brett Perlman of the Center for Houston's Future during a Nov. 18 webinar. "I think we're blessed with great geology and obviously the skills and talent to do this."