Gulf Lease Sale Good, But We Need to Explore New Areas

Mark Green
Posted May 2, 2018

The most recent federal Gulf of Mexico oil and natural gas lease sale was described in some media reports as “disappointing,” “modest” and “tepid.” But there’s another, more positive way to look at it.

First, every offshore lease sale the federal government holds is welcome by industry, because each represents new opportunity for the market to work as it should – with companies making investment decisions based on the potential for significant natural gas and oil production. It has to be that way, because offshore development is expensive and can take seven years or more to result in production. In this post, former Bureau of Ocean Energy Management Tommy Boudreau elaborates on other factors that shaped the recent lease sale.

As the U.S. considers developing more of its outer continental shelf (OCS), remember that about 94 percent of the federal OCS remains off limits to development. So making progress is all important – especially with the prospect for even more progress in a new offshore leasing program the administration is crafting. The end goal is to harness more of our offshore reserves to strengthen America’s future energy security while supporting local, state and national economies. Jason McFarland, International Association of Drilling Contractors president, in an interview with E&ENews:

The sale “reflects the oil and gas industry's improving market conditions and a regulatory environment which is favorable to the safe and responsible development of the vast amount of U.S. offshore natural resources.”

A more important point underscored with the Gulf sale is one we’ve been making for some time – that the federal government needs to make available new offshore areas for study, research, exploration and development.

The Gulf is vitally important to U.S. oil production, accounting for 1.6 million barrels per day or about 17.7 percent of all domestic output, yet the areas offered for lease this latest go-around weren’t new. A map from BOEM shows the preponderance of leases in the Gulf’s central and western planning areas compared to the Eastern Gulf:

Areas in the Eastern Gulf, the Atlantic and Pacific OCS and off Alaska also should be considered for the future – and it’s encouraging that the U.S. Interior Department’s draft leasing program includes them.

National Ocean Industries Association President Randall Luthi said while the recent sale showed a “promising trajectory toward the future,” more offshore access is needed:

“Bonus bids are an indicator of the ability and confidence of producers to invest in the Gulf of Mexico. These are not new fields, and producers are attempting to pick the best of what is left.”

Luthi said the bids demonstrate a “solid commitment” by the natural gas and oil industry to invest in offshore operations and the jobs that come with them. Because companies are constantly considering areas around the world for exploration and development, he said, the U.S. must consider ways to keep the Gulf a competitive area for that development, especially compared to competition from areas off Brazil and Mexico.

Erik Milito, API’s director of upstream and industry operations, echoed Luthi’s point:

“We have been developing this region for 50-plus years, and we need opportunities in new areas so the industry can make the discoveries of resources that our economy will need for decades to come.”

Again, the recent Gulf lease sale is important for American energy and our nation’s security going forward. Natural gas and oil companies continue to look to the Gulf  and other offshore areas as they consider long-term investments.

At the same time, the United States offshore offers an even wider energy potential that will begin to be unlocked only as new areas on the OCS are included in the federal leasing plan, making them an option for future development.