US to kick off Gulf of Mexico oil drilling rights auction

(Reuters) - The Biden administration will hold an auction of oil leases in the U.S. Gulf of Mexico on Wednesday, the first test of demand for new investment in the region since the Russian invasion of Ukraine tightened energy supplies and sent prices soaring.

The auction fulfills a provision in President Joe Biden's 2022 climate change law, the Inflation Reduction Act (IRA), that protects federal oil and gas leasing and requires that a Gulf sale be held by March 31.

Prior to passage of the IRA last year, the administration had canceled three planned offshore lease sales in the Gulf and Alaska, citing a lack of industry interest and conflicting litigation over the president's leasing policy.

The Bureau of Ocean Energy Management will offer 73.3 million acres in the U.S. Outer Continental Shelf (OCS) in the Gulf. Bids were due on Tuesday and will be read at a live-streamed event on BOEM's website beginning at 9 a.m. CDT (1400 GMT) on Wednesday.

The leases are for terms of five or 10 years, depending on water depth, and carry royalty rates of 18.75%, a maximum established in the IRA. The rate is an increase for shallow water leases, which in recent sales were offered with a royalty rate of 12.5%. The IRA raised the minimum royalty rate for offshore leases to 16.67%.

Biden had pledged to end new leasing during his presidential campaign as part of his goal to decarbonize the U.S. economy by 2050 and combat global warming. But he has faced pressure to increase domestic supplies of oil and gas to reduce price spikes and boost energy security.

The Gulf of Mexico accounts for 15% of U.S. oil production and 1% of natural gas production, according to the U.S. BOEM. Production in the region is expected to keep growing through 2027, according to a 2022 BOEM forecast that assumes leasing will continue.

The auction will be the first in the oil-rich region since late 2021. That sale generated more than $190 million in high bids, and was later canceled by a federal judge who said the administration had not adequately accounted for the impacts on climate change in its environmental analysis. Those leases were reinstated by the IRA.

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