First Onshore Oil and Gas Lease Sale in 11 Months Auctions at $79 million

The Biden administration held its first onshore oil and gas lease sale of the year in May, nearly a year after the last auction and eight months after provisions within the Inflation Reduction Act mandated that sales continue. Total 2023 onshore lease sales are significantly curtailed from years prior, and with no finalized 2023-2028 Proposed Program for offshore oil and natural gas lease sales, the historic decrease in federal leases could compromise America’s energy security.

The New Mexico Auction

The recent lease sale offered more than 10,000 acres in New Mexico and Kansas, and sold a total of 8,596.25 acres sold for a total of almost $79 million. New Mexico attracted 99.9 percent of combined bids for a total $78.81 million of the $78.84 million sale, and saw the highest bids with one parcel of land reaching $16 million.

The incredible interest in federal leases in New Mexico continues a trend of increased production in the state. In 2022, New Mexico accounted for more than 13 percent of U.S. crude oil production, second only to Texas. And for the third consecutive year, crude oil production grew more in New Mexico than in any other U.S. state, according to the Energy Information Administration.

Source: Energy Information Administration

While this lease sale included the new, higher 16.67 percent royalty rate, there have been far fewer sales and acreage offered in New Mexico over the last two years, putting in jeopardy billions of dollars the oil and gas industry contributes to the state’s operating budget each year.

Future Lease Sales

Although the return of onshore lease sales after an eleven-month pause is a welcome and long overdue sight, this sale is still just a fraction of the acreage offered compared to previous sales.

Source: BLM Fiscal Year 2022 Statistics

As a Wall Street Journal analysis recently explained:

“The Biden administration has leased fewer acres for oil-and-gas drilling offshore and on federal land than any other administration in its early stages dating back to the end of World War II, according to a Wall Street Journal analysis.

“President Biden’s Interior Department leased 126,228 acres for drilling through Aug. 20, his first 19 months in office, the analysis found. No other president since Richard Nixon in 1969-70 leased out fewer than 4.4 million acres at this stage in his first term.”

The American Petroleum Institute critiqued the administration’s lack of a consistent leasing schedule in a statement to Fox Business:

“Taking a restrictive approach to energy policymaking does not shrink demand for affordable and reliable energy. We urge the administration to work with energy producers to meet the energy needs of the American people by holding consistent lease sales onshore and offshore.”

Instead, the administration has been asking OPEC to increase oil production and delaying the release of the Department of Interior’s 2023-2028 Proposed Program for the Outer Continental Shelf (OCS) Oil and Gas Leasing Program that would give consistency and improved offerings to industry. To date, the finalized OCS Leasing Program hasn’t been published, and OPEC and Saudi Arabia have decided to decrease global oil supply by approximately 2 million barrels per day, increasing to 3 million barrels per day in July.

The Independent Petroleum Association of America commented on the proposed OCS Leasing program, outlining the importance to industry and consumer to have the plan published as soon as possible:

“In 2021, offshore production accounted for 15 percent of U.S. oil production1 and 2 percent of U.S. gas production.  A recent EIAP study projects that precluding lease sales until 2028 would result in a 33 percent decrease – 885,000 fewer barrels per day – in offshore oil and natural gas production by 2036. Inevitably, this would further exacerbate many of the current negative trends and pricing issues our nation is already facing.

“While the Biden Administration has intently focused on addressing climate concerns and expressed its intention to make oil and natural gas obsolete, independent analysis from the Energy Information Administration has shown that oil and natural gas will be necessary to meet America’s energy needs for the foreseeable future. When we accept that reality, the question becomes whether we want to strengthen our energy security and maintain our role as a global energy leader by producing that oil and natural gas here in America or become reliant on foreign nations.

So far, the administration has completed one offshore lease sale for 73.3 million acres in March this year (lease sale 259), and have only one more sale planned for 73.4 million acres in September (Lease sale 261).

Bottom Line: Federal lands development is an important part of ensuring U.S. energy security. The domestic oil and natural gas industry is working to secure additional leases to produce the supply needed to meet growing energy demand, and invested $79 million in the first federal land auction this year in order to do so. There are more sales scheduled in additional states this quarter, but indication has been given that any third or fourth quarter sales will take place.

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