By MATTHEW BROWN and JANET McCONNAUGHEY
NEW ORLEANS (AP) — Energy companies including Shell, BP, Chevron and ExxonMobil offered a combined $192 million for drilling rights on federal oil and gas reserves in the Gulf of Mexico on Wednesday, as the first government lease auction under President Joe Biden laid bare the hurdles he faces to reach climate goals dependent on deep cuts in fossil fuel emissions.
The Interior Department auction came after attorneys general from Republican states led by Louisiana successfully challenged a suspension on sales that Biden imposed when he took office.
Companies bid on 308 tracts totaling nearly 2,700 square miles (6,950 square kilometers). It marked the largest acreage and second-highest bid total since Gulf-wide bidding resumed in 2017.
Driving the heightened interest are a rebound in oil prices and uncertainty about the future of the leasing program, industry analysts said. Biden campaigned on pledges to end drilling on federally owned lands and waters, which includes the Gulf.
“Prices are higher now than they’ve been since 2018,” said Rene Santos with S&P Global Platts. “The other thing is this fear that the Biden administration is here for another three years. They’re certainly not going to accelerate the number of lease sales and they could potentially have fewer sales.”
It will take years to develop the leases before companies start pumping crude. That means they could keep producing long past 2030, when scientists say the world needs to be well on the way to cutting greenhouse gas emissions to avoid catastrophic climate change.
Yet even as Biden has tried to cajole other world leaders into strengthening efforts against global warming, including at this month’s UN climate talks in Scotland, he’s had difficulty gaining ground on climate issues at home.
The administration has proposed another round of oil and gas sales early next year in Wyoming, Colorado, Montana and other states. Interior Department officials proceeded despite concluding that burning the fuels could lead to billions of dollars in potential future climate damages.
Emissions from burning and extracting fossil fuels from public lands and waters account for about a quarter of U.S. carbon dioxide emissions, according to the U.S. Geological Survey.
“The thing that is really bedeviling people right now is this conflict between the short term and long term when it comes to energy policy,” said Jim Krane, an energy studies fellow at Rice University in Houston. “We still need this energy system that is basically causing climate change, even as we’re fighting climate change.”
Wednesday’s livestreamed auction invited energy companies to bid on drilling leases across 136,000 square miles (352,000 square kilometers) — about twice the area of Florida. Federal officials estimated prior to the sale that it could lead to the production of up to 1.1 billion barrels of oil and 4.4 trillion cubic feet of natural gas.
Shell Offshore Inc., the largest leaseholder in the Gulf, said the 20 tracts on which it successfully bid $17.9 million could offer development opportunities near existing platforms or new areas.
“The need absolutely continues for continued competitive leases in the U.S. Gulf of Mexico,” said Shell spokesperson Cindy Babski.
Chevron USA was the top bidder, offering almost $49 million for 34 tracts. BP Exploration and Production had $30 million in high bids on 46 tracts, and Anadarko US Offshore had almost $40 million in high bids — including the day’s highest bid, $10 million — on 30 tracts.
ExxonMobil bid nearly $15 million in two areas off the Texas shoreline in the northwest Gulf.
Those 94 tracts are in shallow water — less than 656 feet (200 meters) deep — where oil has mostly played out and there are few active leases.
Not far away in the Houston Ship Channel, Exxon is pursuing a government-industry collaboration that would raise $100 billion to capture carbon dioxide from industrial plants, carry it away in pipelines and inject it deep under the floor of the Gulf of Mexico, a process known as carbon capture and sequestration, or CCS.
“The Exxon bids have to be a play on their proposed CCS project,” said Justin Rostant with industry consulting firm Wood Mackenzie.
ExxonMobil spokesperson Todd Spitler declined to say if there was a link between its bids and the carbon capture proposal. The company is evaluating the subsurface geology for ”future commercial potential” and will work with the Interior Department on its plans after leases are awarded, he said.
Shallow waters have typically been more attractive to smaller oil firms with less to spend on costly deep water exploration, said Rice University’s Krane. As managing carbon becomes more viable, he said, shallow tracts will become attractive for things beyond oil production.
Environmental reviews of the lease auction — conducted under former President Donald Trump and affirmed under Biden — reached an unlikely conclusion: Extracting and burning the fuel would result in fewer climate-changing emissions than leaving it.
Similar claims in two other cases, in Alaska, were rejected by federal courts after challenges from environmentalists. Climate scientist Peter Erickson, whose work was cited by judges in one of the cases, said the Interior Department’s analysis had a glaring omission: It excluded greenhouse gas increases in foreign countries that result from having more Gulf oil enter the market.
Federal officials recently changed their emissions modeling methods, citing Erickson’s work, but said it was too late to use that approach for Wednesday’s auction.
An attorney for environmental groups challenging Wednesday’s sale in federal court said it was based on “incorrect data” that doesn’t reflect its impact on the environment.
“It’s basically a giveaway to industry of millions of acres of the Gulf of Mexico so they can lock in production for years, at a time when we need to be shifting away from fossil fuel development,” said Earthjustice attorney Brettny Hardy.
The Gulf of Mexico accounts for about 15% of total U.S. crude production and 5% of its natural gas.
Federal officials have 90 days to award or reject the bids.
Brown reported from Billings, Montana.
Follow Matthew Brown on Twitter: @MatthewBrownAP
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