NEWS ARTICLES | March 20, 2008
Louisiana to see profits after Gulf oil lease sale
By Jen DeGregorio | New Orleans Times-Picayune | Link to article
State to use income to shore up coast, hurricane protection
Louisiana will finally profit from offshore oil and gas production, a shift in federal policy set in motion Wednesday during the government's annual auction of drilling tracts in the Gulf of Mexico.
The U.S. Minerals Management Service, which oversees drilling in federal waters, held two sales Wednesday in the Louisiana Superdome that together offered nearly 30 million acres and drew a record level of bidding from energy companies competing for the leases. The smaller of MMS' two offerings, Lease Sale 224, drew $64.7 million in high bids that for the first time will be shared with Louisiana and other Gulf states.
The Gulf of Mexico Energy Security Act of 2006 allowed drilling in previously untapped areas of the Gulf, including the nearly 550,000 acres auctioned during Lease Sale 224. The legislation earmarked about 37.5 percent of money generated by the sale for Louisiana, Alabama, Mississippi and Texas to use for coastal restoration projects. Louisiana's share of the Lease Sale 224 bids would amount to about $7.7 million, or about 32 percent of the four states' share. Additional revenues would flow to the states as leaseholders make rent payments and begin paying royalties on unearthed oil and gas.
The 2006 law also will allow the four states to share profits from 5.8 million more acres in the central Gulf that are slated for auction next year. Starting in 2016, the states will begin drawing revenue from all new leases in the Gulf. The policy would bring more than $10 million each year to Louisiana for the next decade, said Adam Sharp, a spokesman for Sen. Mary Landrieu, D-La., who co-sponsored the 2006 legislation. By 2028, the state could see as much as $1 billion a year.
Louisiana plans to sink that money into its Coastal Restoration and Hurricane Protection Trust Fund, which pays for projects such as levee construction and wetland restoration in the state's 19 coastal parishes, said Chris Macaluso, a spokesman for the state's Coastal Protection Restoration Authority.
"This state now stands ready with a master plan for coastal restoration and protection, one that many of us have spent months of hard work to develop and want to implement," Scott Angelle, secretary of the state Department of Natural Resources, said in a statement.
Louisiana will not see any cash from Lease Sale 206, the larger of Wednesday's MMS sales, which had been planned before the 2006 law. The sale's offering of 615 tracts on more than 28.5 million acres in the central Gulf drew a record $3.7 billion in high bids, shattering the 1983 watermark of $3.4 billion.
"Today MMS won the championship," said Dirk Kempthorne, secretary of the Department of the Interior, who officiated at the auction and met with a delegation of four officials from Iraq's oil ministry in town for the event. Kempthorne said the Iraqis came to observe the "transparency" and "efficiency" of the MMS offshore auction process.
An area called Green Canyon drew high demand during Lease Sale 206, with one parcel in that area garnering the day's top bid of $105.6 million, an offer made by a team that included Anadarko E&P Co., Murphy Exploration and Production Co. and Samson Offshore.
Out-of-state companies, such as Hess Corp., Cobalt International Energy and BP Exploration & Production, dominated the sale. Louisiana firms, including McMoRan Exploration Co. and Bayou Bend Offshore, made a strong showing with offerings for various tracts. One local company, Stone Energy Corp., made the list of the top 10 high bidders for Lease Sale 206 with 25 high bids worth more than $43 million.
Analysts attributed the bidding frenzy to steadily rising fuel prices and technological advancements that have allowed the energy industry to reach fuel stored in the deepest parts of the Gulf.
"The big activity is in the deepwater," said Tom Fry, president of the National Ocean Industries Association. "That's the frontier area; that's where all the new production will come from."
There appeared to be less demand for tracts offered in Lease Sale 224. The top bid for that sale came from Anadarko and Murphy, which together offered about $8 million for a parcel in Lloyd Ridge. Fry attributed the calmer reaction during Lease Sale 224 to a lack of information about reserves in the area.
"There hasn't been much seismic activity in that area," he said. "Until you drill, you don't know what you're going to get."