A U.S. government auction of oil and gas drilling rights in the Gulf of Mexico generated $263.8 million in high bids, the most of any sale in the region for years and the first test of demand for investment since the Russian invasion of Ukraine.
The Bureau of Ocean Energy Management (BOEM) offered 73.4 million acres in the U.S. Outer Continental Shelf (OCS) in the Gulf. Bids were read at a live-streamed event on Wednesday morning.
The auction fulfills a provision in President Joe Biden’s 2022 climate change law, the Inflation Reduction Act (IRA), that protects federal oil and gas leasing and requires that a Gulf sale be held by March 31.
The auction was the first in the oil-rich region since late 2021. The high bid total was the largest since a 2017 sale in the Central Gulf area garnered $274.8 million.
Chevron was among the highest spenders on Wednesday, with multiple bids for deepwater tracts in the millions of dollars. The company, which wasn’t immediately available for comment, made a bid of $15.9 million for a tract in the Keathley Canyon area.
Exxon, meanwhile, snapped up more than 60 shallow water blocks near the Texas coastline. Analysts have said the company may be preparing for a carbon capture and storage project.
The company on Wednesday said only that it was “evaluating the seismic and subsurface geology for future commercial potential.”
Other tract winners included Shell Plc, BP Plc, Hess Corp and Equinor ASA.
Prior to the passage of the IRA last year, the administration had canceled three planned offshore lease sales in the Gulf and Alaska, citing a lack of industry interest and conflicting litigation over the president’s leasing policy.
The leases are for terms of five or 10 years, depending on water depth, and carry royalty rates of 18.75%, a maximum established in the IRA. The rate is an increase for shallow water leases, which in recent sales were offered with a royalty rate of 12.5%. The IRA raised the minimum royalty rate for offshore leases to 16.67%.
Biden had pledged to end new leasing during his presidential campaign as part of his goal to decarbonize the U.S. economy by 2050 and combat global warming. But he has faced pressure to increase domestic supplies of oil and gas to reduce price spikes and boost energy security.
The Gulf of Mexico accounts for 15% of U.S. oil production and 1% of natural gas production, according to the U.S. BOEM. Production in the region is expected to keep growing through 2027, according to a 2022 BOEM forecast that assumes leasing will continue.