US Federal Court Ruling May Hamper O&G Lease Bidding


A recent federal court decision that threw out an Outer Continental Shelf (OCS) leasing plan approved by the Bush administration will likely limit participation in the next Gulf of Mexico lease bidding in August, Devon Energy Chairman and CEO Larry Nichols said Tuesday.

"A cloud of uncertainty has been raised over the whole process," Nichols said at the Platts Energy Podium in Washington.

He said the April 17 ruling by the U.S. Court of Appeals for the District of Columbia Circuit, which was meant to vacate controversial leases in Alaska, could potentially affect the entire OCS, including future lease sales in the Gulf of Mexico.

"Unless this is clarified before the next sale, it will affect bidding," said Nichols, who is also the chairman of the American Petroleum Institute.

The Minerals Management Service (MMS) plans to hold Lease Sale 210 for the western Gulf of Mexico on August 19 in New Orleans. MMS estimates the proposed lease sale could result in the production of 242 million to 423 million barrels of oil and 1.6 to 2.6 trillion cubic feet of natural gas.

But the court decision remanded to the Department of the Interior the entire 2007-2012 oil and natural gas leasing program for the OCS, ruling that agency officials under the Bush administration did not conduct sufficient research to determine whether proposed drilling offshore Alaska would harm the environment and marine life.

Interior has not indicated whether it plans to abide by the court's ruling or ask for a clarification regarding sales in the Gulf of Mexico.

Bonus bids this year have already been declining as a result of less-worthy prospects coming to bid as well as lower crude oil and natural gas prices, but the court's decision earlier this month "just adds yet another level of uncertainty" which will likely result in fewer companies bidding on lease sales in the OCS, Nichols said.

Interior Secretary Ken Salazar presided over Lease Sale 208 in New Orleans last month, which brought in about $720 million.

Nichols said the court decision could mean the government might have to return billions bid in previous lease sales as well.

"This decision just further undermines the rule of law," he said.

Lease Sale 193 in Alaska's Chukchi Sea brought in a record $3.7 billion in bids in February 2008.