U.S. auctions off Arizona-sized stretch of the Gulf of Mexico for oil and gas drilling

The Biden administration auctioned off a massive stretch of the Gulf of Mexico to oil and gas drilling on Wednesday, marking the second time in as many weeks the federal government has facilitated major fossil-fuel development on public lands.

The auction, which was required under last year's Inflation Reduction Act, drew a combined $263 million in bids, with interest from Chevron, ExxonMobil and Shell, according to the Associated Press. These companies have seen record profits this year amid high prices for gasoline and other fossil fuels. 

Coming only two weeks after the U.S. allowed the Willow oil-drilling project in Alaska to move forward, the Gulf auction is drawing fire from environmentalists criticizing President Biden's reversal of a campaign pledge to ban new fossil fuel extraction on federal lands. 

"Once these leases are offered and issued, it is going to lock in oil and gas development in the Gulf for the next 50 years," said George Torgun, an attorney with Earthjustice. "Coming on the heels of the Willow decision, this certainly feels like another step backwards in the fight against climate change, which this administration has said is an existential threat." 

Earthjustice, a nonprofit public interest group, sued this month to block the sale of drilling rights in the Gulf of Mexico, claiming the Interior Department didn't properly assess the impacts of fossil fuel development in the region, which is home to five species of sea turtles and to Right whales, a critically endangered species. The group is part of a separate lawsuit also seeking to halt drilling in Willow.

"Leases resulting from this sale will include stipulations to mitigate potential adverse effects on protected species and to avoid potential conflicts with other ocean uses in the region," the Bureau of Ocean Energy Management (BOEM) said in a statement.

Sop to Joe Manchin

The auction was required by last year's Inflation Reduction Act, which banned leasing of public lands for renewable energy unless leases were first offered for fossil-fuel development. The provision was included to gain support for the bill, which was strongly backed by the White House, from Sen. Joe Manchin, the West Virginia Democrat who is a longtime supporter of oil and gas.

The climate law also raised the royalty rate companies must pay on oil they produce. The Biden administration set the rate for Wednesday's sale at the maximum allowed — 18.75%, versus 12.5% historically — although that did not appear to curb interest from oil giants eager to step up drilling in the Gulf. 

Since it takes years and sometimes decades to develop offshore parcels before crude is pumped, the leases could produce oil and gas long past 2030. That is also the date by which scientists say the world needs to dramatically reduce greenhouse gas emissions to stave off the worst effects of climate change. 

The total area offered for auction Wednesday was roughly the size of Arizona, but, as in past auctions of similar magnitude, only a fraction of them got bids.

Once fully developed, the area could produce 1 billion barrels of oil and more than 4 trillion cubic feet of natural gas over 50 years, according to a Bureau of Ocean Energy Management analysis. Burning that oil would also produce tens of millions of tons of planet-warming carbon dioxide emissions, the analysis found. 

The American Petroleum Industry called the auction "a belated but positive step toward a more energy-secure future" and asked the Interior Department to authorize more drilling.

The Interior Department must wait 90 days after an auction to announce winning bids, meaning that the sale could still be stopped in court. Torgun, of Earthjustice, said BOEM could also be critical in choosing where to award leases, even deciding that none should be awarded. 

"The Bureau has a lot of discretion, now that it's received the bids, in looking at which ones should be awarded, which ones are in the public interest. We will be advocating for them to take a really hard look at that," he told CBS MoneyWatch.

In a court filing this week, Chevron said it could lose millions of dollars if the leases are blocked.

"Chevron plans to produce from its Gulf of Mexico leases for decades into the future," Trent Webre, a Chevron manager in the region, told the AP.

The previous Gulf of Mexico auction in 2021 drew a combined $192 million in bids from companies. That sale was later blocked by a federal judge, then reinstated under last year's inflation bill. Later this year, the administration also plans to auction more than 500 square miles of onshore oil and gas leases in Wyoming, New Mexico, Montana, Nevada and other states.

The Associated Press contributed reporting.