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Vol. 12, No. 1 Week of January 07, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Shifting boundary line for Gulf sales

Minerals Management Service to include former some or all of 2 million acres of Eastern Gulf of Mexico tracts in fall lease sale

Ray Tyson

For Petroleum News

The U.S. Minerals Management Service has carved out the first 2 million acres of 8.3 million acres that Congress set aside for future oil and gas lease sales in the Eastern and Central Gulf of Mexico. Some or all of the 2 million acres likely will be included in Sale 205 tentatively scheduled for early fall 2007, MMS indicated.

The announcement came a few months after MMS was forced to cancel the March 2007 Central Gulf lease sale, following an unprecedented federal court ruling directing the agency to conduct a more thorough environmental study, taking into account the heavy damage caused to Louisiana’s coastal region by hurricanes Katrina and Rita.

Sale 205 would be the first offering in MMS’ proposed 2007-12 offshore leasing program, and the first to be held since the August 2006 Western Gulf lease sale.

Cancellation of the March 2007 Central Gulf lease sale, the outcome of a lawsuit brought by the State of Louisiana, likely means a loss to the federal government of several hundred million dollars in revenues. The last Central Gulf lease sale (198), held in March 2006, generated just over $588 million in high bids.

Eastern Gulf leasing a hot political issue

Oil and gas leasing in the Eastern Gulf of Mexico has long been a hot political issue, pitting industry against environmentalists and Florida, which has consistently opposed any drilling off it shores, fearing this would threaten Florida’s coastal areas and keep tourists away from the Sunshine State.

“We are prepared to ensure that all offshore oil and gas operations are conducted in an environmentally sound manner and that before an area is offered in a lease sale, it will have a very thorough analysis of the effects on the environment,” MMS Director Johnnie Burton pledged in a Dec. 21 press release announcing some details of proposed Sale 205.

In the waning hours of the 109th Congress, the Republican-led House and Senate on Dec. 9, before turning control over to the Democrats, passed the Gulf of Mexico Energy Security Act opening an additional 8.3 million acres in the Eastern and far eastern Central Gulf of Mexico to oil and gas exploration. The act was signed into law by President Bush.

Before the bill went to vote, MMS altered the boundary line between the Central and Eastern Gulf lease planning areas, moving a significant chunk of what used to be in the Eastern Gulf to the less controversial Central Gulf planning area.

Act allows for leasing in two areas

The Gulf of Mexico Energy Security Act allows for oil and gas leasing in two areas: the so-called 181 Area, comprising 2 million acres in the Central Gulf planning area, which used to be in the Eastern Gulf, as well as an area of about 580,000 acres next door in the Eastern Gulf planning area; and a second area of roughly 5.8 million acres in the Central Gulf planning area south of the 181 area, dubbed 181 South Area. This area also was largely within the bounds of the Eastern Gulf, before MMS changed the boundary line.

The Central Gulf portion of the 181 Area, which used to be in the Eastern Gulf, was reviewed in a draft environmental impact statement published in November, and will be available for lease in Sale 205 scheduled for early fall 2007, MMS said.

MMS said it also has begun the “process of environmental review” for the Eastern Gulf portion of the 181 Area, 125 miles from the Florida Panhandle. As part of the environmental review process, public meetings will be held in Florida and other involved states, MMS said.

The 181 South Area also will receive “an appropriate environmental review” at a later date before any leasing occurs, MMS said.

MMS reminded operators that once a lease is awarded, they are required to submit plans for exploration and development specific to the location of the tract. “These plans are subject to a technical, engineering and environmental review to ensure that operations will be conducted in an environmentally sound manner,” MMS said.

The 181 Area refers to Eastern Gulf Lease Sale 181, which reopened a tiny portion of the Eastern Gulf in 2001 following more than a decade of closure. Despite its small size, Sale 181 generated a whopping $340.5 million in high bids, representing one of the most successful outings pound-for-pound in the Gulf leasing program.

Sale 181 resulted in numerous natural gas discoveries that are to be funneled through Independence Hub, an “ultra-deepwater” production facility scheduled to come on stream later this year. However, because of its size, additional lease sales held within the 181 area attracted fewer and fewer bids.

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