Biden signals third year of offshore oil-leasing delay in gulf

Jennifer A. Dlouhy 3/29/2022

(Bloomberg) — The Biden administration doesn’t anticipate selling offshore drilling rights in the Gulf of Mexico through at least October 2023, effectively stretching a delay in that activity to a third year, according to economic projections included in its newly released budget proposal.

The numbers show expected revenues from offshore oil auction bids and annual rental payments on existing leases are set to plummet in fiscal 2023 by about $370.4 million to just $25 million. That reflects the government’s typical haul from two auctions of oil and gas leases in the Gulf of Mexico.  

The anticipated offshore leasing pause comes despite the war in Ukraine and high costs for oil, gas and gasoline that have prompted administration officials to implore energy companies to pump more crude. The Gulf of Mexico generates about 15% of the nation’s crude production.

Based on the revenue projections in the Biden budget, there could be at least a three-year gap in the sale of new offshore oil and gas leases, said Erik Milito, the head of the National Ocean Industries Association. “It’s pretty clear that there are no new lease sales on the horizon in their mind from a budgeting standpoint until fiscal year 2024” at least, Milito said. 

In practical terms, the delay could mean forfeiting hundreds of millions of dollars in federal revenue annually and eventually shrink oil production in the Gulf of Mexico. Though new leases sold today can take years to yield crude, the delay means companies will not be able to replenish existing holdings and search for more oil as existing wells are retired. 

“Estimates related to future leasing are placeholders only, in recognition of the dynamics of pending litigation and appeals, as well as the Interior Department’s ongoing development of the five-year plan for the offshore program,” Interior spokeswoman Melissa Schwartz said.

Interior Department officials have maintained that there is no longer a leasing pause. Under a court order, the Interior Department sold oil and gas leases in the Gulf of Mexico last November, but a federal judge later invalidated the auction, after finding regulators did not fully analyze its climate impacts. And though required by federal law, a new five-year plan for selling leases is not on track to be in place by June 30, when the current Obama-era program expires. 

Delays in the five-year leasing program that prevent auctions until 2028 would translate into reduced oil and gas production of about 500,000 barrels per day between 2022 and 2040, according to an analysis released by the American Petroleum Institute and National Ocean Industries Association on Tuesday. Under federal law, leases can only be scheduled and held if they are included in the five-year program. Work on the sale schedule stalled after the Trump administration in 2018 outlined a draft proposal, an early step in formalizing a new five-year leasing program.

“The Interior Department is actively developing its five-year plan for the offshore program,” the agency said in an emailed statement. “In the meantime, of the more than 11 million acres of offshore federal waters already under lease, more than three-quarters -- 75.58% or 8.29 million acres -- are unused and non-producing.”

Environmentalists have pushed the Biden administration to stop selling offshore oil and gas rights entirely, arguing that the activity would worsen the climate crisis. Biden temporarily halted government oil auctions last year to study the environmental consequences of the activity, before a federal judge ordered the administration to resume sales.

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