The People of America's Oil and Natural Gas Indusry

Lease Auction: There’s More Where That Came From

Mark Green

Mark Green
Posted December 3, 2012

The federal government says it expects to take in $133.8 million in high bids for drilling rights in the western Gulf of Mexico from last week’s lease auction – a sale that underscored the oil and natural gas industry’s continued interest in deep-water development. Fuel Fix reports:

"Just 11 of the 116 blocks that were snapped up are located in less than 200 meters of water and some 40 of the sold tracts are in water depths of more than 1,600 meters. … Tommy Beaudreau, director of the Bureau of Ocean Energy Management that held the auction, said the bidding reinforced the 'significant interest in the deep water, in particular, in the Western Gulf, and in these sub-salt plays.'”

Industry reactions:

  • National Ocean Industries Association President Randall Luthi: The auction was “on par with expectations and shows that the offshore oil and natural gas industry is still committed to domestic exploration and production.”
  • API Upstream Group Director Erik Milito: “Every one of these leases is going to bring in money today, and it’s going to bring in money in rentals for 7 or 10 years” in addition to royalty payments.

The auction is good news. It says the oil and natural gas industry will seek and find the energy needed to run our economy and support our standard of living – when and where exploration and development is allowed.

The latter is a key point. Milito noted the total number of tracts that were bid on reflected the limited number of leases available as well as the areas where the leases are located. “There’s not a lot to choose from in the western Gulf,” he said. Even so, the industry continues to see promising prospects in the Gulf of Mexico, so the fact the auction was held is positive.

This good news can be even better. While the industry has been limited in its opportunities to the western and central Gulf and portions of Alaska, last week’s auction points to a much larger revenue stream for government if more of our offshore areas are opened up for leasing. The map below shows how much of our federal offshore oil and natural gas reserves are currently off limits – more than 80 percent of the available acreage:

Now, consider the potential revenue for government from increased offshore activity – in terms of new income from taxes, lease sales and royalties. Wood Mackenzie’s 2011 study found that by opening access to new offshore areas more than $312 billion could be generated for government – and along with it hundreds of thousands of new jobs.

The revenue from new offshore development would be part of an estimated $800 billion generated by 2030 from pro-energy policies affecting offshore and onshore activity, Wood Mackenzie estimated. Here’s how the projected revenue growth looks in a chart:

Final point: With all the talk of generating revenue for the federal government, pro-energy policies that include greater access to domestic oil and gas resources are a better idea for raising government revenue than increasing energy taxes, as some continue to advocate. A congressional group is the latest to propose tax hikes on oil and natural gas companies, which it says would net $95 billion for Washington over 10 years. Even by 2020, Wood Mackenzie projects, pro-energy policies – as opposed to increased taxation – would generate $127 billion in revenue for government. And, as the chart above shows, that would be just the beginning of a spike in government revenue to come.

Again, while last week’s Gulf auction is a positive development, even more revenue for government – plus energy, plus jobs – can be generated: If we use the resources we have by taking a pro-development approach to energy. Ultimately, these would be a far better revenue generator for government than punitive, discriminatory tax hike schemes.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.