More offshore leases might not mean more revenue

Published Sep 10, 2012 at 10:00 am (Updated Sep 10, 2012)

Republican Gulf Coast governors and leaders on Capitol Hill have criticized the Obama administration's plans to hold 12 auctions of Gulf of Mexico drilling rights over the next five years, with some insisting that there should be many more. As The Houston Chronicle reports, they say increasing the number of auctions would spur energy companies to snap up more coastal waters for offshore drilling, immediately filling federal coffers with lucrative lease revenue and ultimately paying more oil royalty dollars for years to come. But such plans could cost the government more than it makes from additional sales. Each offshore auction carries a hefty price tag—$2 million to $4 million on average; and energy analysts say it's unlikely that oil and gas companies would purchase more leases just because they got more chances to buy them. In fact, the opposite may be true. Earlier this year, when the government held its first central Gulf lease sale since the 2010 oil spill, pent-up demand led to record-setting offers and brought in $1.7 billion in winning bids. That's almost double the $949 million from the previous central Gulf auction in March 2010. Having more auctions probably would just split up the bids, says Dave Pursell, an analyst and managing director of the Houston-based energy investment bank Tudor, Pickering & Holt. "I can't imagine you're ending up with more revenue if you're releasing the same acreage or the same tracts, just doing it more often," he says. Read the full story here.