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Companies bid USD264M in Gulf oil sale mandated by climate law

NEW ORLEANS (AP) – Oil companies offered a combined USD264 million for drilling rights in federal waters in the Gulf of Mexico on Wednesday in a sale mandated by last year’s climate bill compromise.

The auction was the first in the Gulf in more than a year and drew strong interest from industry giants including Chevron, BP and ExxonMobil.

But it could further test the loyalty of environmentalists and young voters who backed President Joe Biden in 2020 and were frustrated by this month’s approval of a huge drilling project in Alaska.

Developing the Gulf leases would produce up to 1.1 billion barrels of oil and more than 113 billion cubic metres of natural gas over 50 years, according to a government analysis.

Burning that oil would increase planet-warming carbon dioxide emissions by tens of millions of tonnes, the analysis found.

A legal challenge to the sale from environmental groups is pending in federal court.

The Centenario deep-water drilling platform off the coast of Veracruz, Mexico, in the Gulf of Mexico. PHOTO: AP

Bids were up 38 per cent from the last auction and marked the most offered in a sale since 2017. Chevron USA was the top bidder, offering USD108 million for 75 tracts. BP Exploration and Production had USD47 million in high bids and Shell Offshore had USD20 million in high bids.

The next Gulf lease sale is scheduled in September. It’s unknown how many more the administration could conduct as it faces continued pressure over approval of the ConocoPhillips Willow project in Alaska.

The uncertainty means companies could be trying “to lease blocks now in case future auctions are restricted”, said analyst with S&P Global Sami Yahya.

“From a global perspective, we are perpetually moving toward an environment with stronger anti-fossil fuel sentiment, as operators will continue to face more public scrutiny regarding emissions,“ Yahya said.

The sale came two days before a deadline set in last year’s climate bill. The bill also prohibits leasing public lands for renewable power unless tens of millions of acres are first offered for fossil fuels. That was a concession to West Virginia Democrat Senator Joe Manchin, an industry supporter.

Manchin issued a statement saying the sale results showed the climate bill was “holding this administration’s feet to the fire” to continue fossil fuel production.

The climate law also raised the royalty rate companies must pay on oil they produce. The Biden administration set the rate for Wednesday at the maximum allowed – 18.75 per cent, versus 12.5 per cent historically. The parcels offered covered 295,000 square kilometres an area larger than Arizona. Like past auctions of similar magnitude, only a fraction of the available acreage – about 6,700 square kilometres – got bids.

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