USA Lease Sale Cancellation Leaves Industry in Limbo

USA Lease Sale Cancellation Leaves Industry in Limbo
The move leaves the industry in limbo, according to Fitch Solutions.

The cancellation of lease sales 258 (Cook Inlet) and 259, 261 (Gulf of Mexico) that were planned under the 2017-2022 National Outer Continental Shelf Oil and Gas Leasing Program elevates regulatory uncertainty for oil and gas investors.

That’s what Dominika Rzechorzek, an oil and gas analyst at Fitch Solutions, told Rigzone, adding that the move leaves the industry in limbo as the new five-year leasing program has not been published yet, “despite the rapidly approaching deadline of June 30”.

“Thus, it remains uncertain if and when the Department of Interior (DOI) will hold future offshore leasing auctions,” Rzechorzek said.

The Fitch Solutions analyst noted that the suspension of offshore lease sales in the Gulf of Mexico will have much broader implications as compared to the Cook Inlet lease sale, “given the much stronger interest in the acreage off U.S. southern states”.

“The offshore Alaska lease sales have struggled to gain much interest and many have been cancelled before, for example Lease Sale 242 (Beaufort Sea) or 237 (Chukchi Sea) originally planned for 2015,” Rzechorzek said.

The Fitch Solutions analyst outlined that the last Gulf of Mexico sale, conducted in November 2021 and later annulled in Judge Contreras’ verdict, attracted a number of bidders, “with the level of bids generated in this lease reflecting a heightened interest in the offshore Gulf of Mexico”. 

“Thus, despite growing regulatory uncertainty, we expected that the upcoming Gulf of Mexico leases would gain relatively strong interest, especially as the uncertainty over future of offshore lease sales has grown given lack of details on 2022-2027 Program,” Rzechorzek said.

“We note that suspension of lease programs in the Gulf of Mexico will limit the ability of upstream companies to secure new acreage and pursue new developments to sustain level of oil and gas production despite natural decline in production from mature fields,” Rzechorzek added.

“Should the suspension of lease sales be sustained, Gulf of Mexico would see a more rapid decline in output over the long term, as companies would struggle to replace output from mature fields with production from new developments. However, the near-term production outlook would not be affected to a large extent given a robust project pipeline announce by key oil and gas companies for the near future,” Rzechorzek continued.

Rigzone showed this article to the DOI asking if the organization would like to send over a comment for inclusion. The DOI’s statement can be seen below:

“Due to lack of industry interest in leasing in the area, the Department will not move forward with the proposed Cook Inlet OCS oil and gas lease sale 258. The Department also will not move forward with lease sales 259 and 261 in the Gulf of Mexico region, as a result of delays due to factors including conflicting court rulings that impacted work on these proposed lease sales”.

In its response, the DOI also highlighted that, as of May 1, of the 10.9 million offshore acres under lease, the industry is not producing on 8.26 million acres, or 75.7 percent, and of the 24.9 million onshore acres under lease, the industry is not producing on 12.3 million acres, or 49.4 percent. There are also over 9,000 onshore permits that have been approved and are waiting to be used, the DOI outlined.

Rigzone recently wrote an article exploring why the majority of leased offshore federal waters are non-producing.

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