Spotlight: Latest US Gulf offshore lease auction yields largest amount of high bids since 2019

A version of this Spotlight from S&P Global Platts Analytics was first published Nov. 19.

The US's first offshore lease auction under the Biden administration, Lease Sale 257, which was held on Nov. 17, attracted 33 companies with a collective amount of $192 million in high bids. LS257 offered about 80 million acres covering roughly 15,000 blocks located between 3 to 231 miles offshore in the Gulf of Mexico. However, only 1.7 million acres were leased, with a total of 316 bids placed across 307 blocks. This was the highest number of bids since LS231 in 2014, which garnered 326 bids -- although that sale generated more than $850 million.

Major players made up 77% of the capital spent in LS257, including Chevron ($47 million), Anadarko ($38.9 million), BP ($28.9 million), Shell ($17.9 million), and ExxonMobil ($14.9 million). Nearly half of the awarded blocks (142 of 307) are located in deep or ultra-deep water (800-1,600+ feet), although shallow water blocks (less than 650 feet) had a tremendous showing too, with 140 blocks (45% of total) attracting winning bids. Over the past several years, deepwater blocks have dominated the lease auctions, and shallow blocks made up just 13% of the total in last year's LS256. The sudden jump in shallow-water bids is largely attributed to ExxonMobil, which bid on 100 shallow blocks along the Texas coast. The company is currently working on a recently announced, Houston-based, $100 billion carbon capture and storage project, which has likely driven the high number of bids on the aforementioned shallow blocks.

While the high-price environment played a role in the improved sale statistics of LS257, concerns regarding lease policy changes under the Biden administration may have also driven some operators to collect more blocks while the window remains wide open. The Biden administration enacted a pause on all federal leases earlier this year, but that action was later negated by a federal judge. Further, with the looming expiration of the current Five-year Leasing Program, there are growing concerns that unless the Biden administration acts quickly to prepare the next program, there could be an extended gap before the next offshore lease sale opportunity.

Since 1982, continuous Five-Year Leasing Programs have been required by law under the Outer Continental Shelf Lands Act. The Department of Interior spends up to three years preparing the program as it evaluates the social, economic, and environmental impact of the leases. The current Five-Year Leasing Program, which started on July 1, 2017 under the Trump administration, is set to expire on June 30, 2022. Any complications (such as policy changes) from the Biden administration could delay the startup or significantly tighten the terms of the next five-year cycle, which is required be to be active in order to hold any offshore lease auctions.