Interior Secretary James G. Watt sold nearly $3.5 billion worth of oil and gas drilling rights off the Gulf Coast yesterday in the largest and potentially most lucrative lease offering in history.
Watt, who announced the results to more than 1,000 cheering oilmen in New Orleans' Superdome sports stadium, said the massive sale confirmed that industry supports his controversial five-year program to step up leasing of oil and mineral rights on federal lands. "Today's offering was market-driven," said Watt, who wore a scarlet auctioneer's jacket as he attended his first offshore lease sale. "Tracts receiving bids were identified by industry rather than government specialists in Washington."
The lease offering involved nearly 40 million offshore acres in a broad swath from the Texas-Louisiana line to the Alabama-Georgia line and extending as much as 220 miles into the Gulf of Mexico. The area included every unclaimed tract in the central Gulf area, from which oil companies were permitted to pick and choose. The previous high for a Gulf lease sale was in September, 1980, when the government accepted $2.7 billion in bids on slightly less than a million acres identified for leasing by federal energy specialists.
But that offering came when oil prices were soaring and supplies were short. Yesterday's offering comes at a time of oversupply and slumping oil prices.
Interior officials had expected the sale to draw more attention than previous offshore offerings, partly because of the new procedure of letting the oil companies pick their own tracts and partly because of the area's production history.
"It's the hottest sector of the Gulf, has been for years," said one Interior official. "It was the first to get started with a big bang and has produced far more action than all the others put together."
The area also is well-equipped with pipelines and delivery systems, an advantage that makes it "economically more attractive than an area in Alaska that may have three times as much oil," the official said.
Nevertheless, some department officials, who last month were cautiously estimating bids of as much as $1.1 billion, were stunned at the number of bids the offering drew. When bidding closed at noon Tuesday, the department had logged 1,015 bids from 78 companies.
The highest bid yesterday was for more than $92 million, submitted by a consortium of Mobil Oil, Sohio Petroleum and Kerr-McGee Corp. for a tract about 75 miles off the Louisiana coast. High bids were selected from a total of nearly $4.6 billion in bids on 656 of the 7,250 tracts offered.
The bids "prove industry is convinced there are abundant amounts of oil and gas yet to be found off America's shores," Watt said.
In addition to the lease payments, the government will get royalties on oil and natural gas produced from the tracts. Deep-water tracts are eligible for 10-year leases; those with water depths of less than 900 meters will be leased for five years.
The success of the offering is likely to bring smiles to the faces of contract drillers on the Gulf Coast, where sagging oil prices and a disheveled gas market have sent unemployment soaring.
More than 4,000 oil rigs were drilling in the Gulf two years ago, according to industry officials. Fewer than 2,000 are at work today, and between 100,000 and 125,000 rig workers are out of jobs.
Environmental groups, which have been vocal in their opposition to many of Watt's offshore lease proposals, had a generally muted response to yesterday's sale in the much-drilled Gulf, where more than 7 million acres are already under lease.
"The Gulf has so much drilling on it already that it's one of the places we've turned our attention away from," said Sharon Newsome of the National Wildlife Federation.
Newsome added, however, that the federation "had some concerns" about a similar large-scale sale planned for August in the eastern Gulf area. Parts of that area have been touted as a potential marine sanctuary.
Interior officials said they will not know until later this week precisely how many acres will be put under new leases from the Gulf sale.
Watt, who has been sharply criticized for leasing the nation's coal reserves at what the General Accounting Office recently called "fire-sale" prices, promised that every bid would be reviewed "to assure receipt of fair market value for the American public."