Tag Archives: Oil Rights

Drilling the Gulf

Let me introduce you to the United States Bureau of Ocean Energy Management, Regulation and Enforcement. They are the branch of the Department of the Interior tasked with overseeing the safe management of the nation’s mineral wealth on the Outer Continental Shelf. When the Deepwater Horizon rig blew up in April 2010, it was BOEMRE that should have been overseeing the whole process. In the wake of the Deepwater Horizon catastrophe, President Obama suspended the auction of drilling rights in the Gulf of Mexico.

The United States retains mineral rights, generally speaking, for land that lies under the surface of the ocean up to about 200-250 miles from the coast – though there’s a whole process of law for determining the exact extent of U.S. territorial claims at any given point. The government leases rights to mineral companies to develop tracts of land. These leases are generally auctioned off to the highest bidder. The way the system is supposed to work is that a company, say BP, is supposed to bid on the rights to develop a given tract of land (or ocean floor). If BP wins, they are supposed to then proceed with the development of those tracts and begin to extract the mineral wealth below, say oil. However, companies will often bid on and win these lease contracts at very low prices and then instead of developing them, simply hoard them. In response to this hoarding, the BOEMRE has instituted new rules that will go into effect when the U.S. resumes lease auctions in December. One of these new rules includes upping the minimum bid price to $100 per acre for tracts in water depths of 1,300 feet or more; up from a previous minimum of $37.50. The $100 price point is important as this is the price under which the BOEMRE found oil companies were more likely to hoard rather than develop. The minimum bid for tracts in shallower water will remain at $25 per acre.

These tracts, more than 20 million acres in all, are expected to produce between 222 and 423 million barrels of oil and between 1.49 and 2.65 trillion cubic feet of natural gas.

The BOEMRE is currently going through a massive reorganization in response to the Deepwater Horizon tragedy, including the creation of the Investigation and Review Unit. Let’s hope that these reform truly do lead to a more secure, sustainable energy solution. Yes, I know it’s still fossil fuels, but if we’re going to use them, at least we should use them responsibly.

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Posted by on August 20, 2011 in North America


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