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Gulf of Mexico Lease Sale Draws a Combined $192M From Bidders

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While investors and environmental groups discuss the impact of climate change, fossil fuel consumption is returning to the pre-pandemic levels. Despite the growing need to limit greenhouse gas emissions, global oil demand is recovering.

The latest oil and gas lease sale for the Gulf of Mexico successfully attracted interest, even when the Biden-led administration tried to cancel the auction to study the effects of climate change. With rising oil prices amid renewed demand, energy companies have sufficient incentives to drill in the Gulf of Mexico.

Several energy companies like Royal Dutch Shell plc (RDS.A - Free Report) , BP plc (BP - Free Report) , Chevron Corporation (CVX - Free Report) , Exxon Mobil Corporation (XOM - Free Report) and Occidental Petroleum Corp. (OXY - Free Report) , signed up for the lease sale to buy drilling rights on federal oil and gas reserves in the Gulf of Mexico.

More than 30 energy companies agreed to spend a combined $192 million to purchase drilling rights in the Gulf of Mexico, marking the highest since 2019. The companies bid on more than 300 drilling blocks that cover 1.7 million acres.

ExxonMobil was one of the top bidders at the federal oil lease auction in the Gulf of Mexico. XOM bid for about one-third of the tracts for $14.9 million, making it the highest bidder by acreage.

ExxonMobil submitted bids for 94 drilling leases in shallow waters along the Texas coastline. Most analysts opine that XOM’s acquisition of shallow water blocks could be a possible initiative for its carbon capture project in the region. The proposed facility will store 50 million tons of carbon dioxide per year by 2030 and double that by 2040.

Chevron is one of the largest leaseholders and producers in the deepwater Gulf of Mexico. CVX was the auction's biggest investor, with a total of $47 million for 34 bids. Chevron made single-highest bid of $4.4 million for the deepwater Mississippi Canyon block 40.

In the past few years, energy companies have struggled to replace reserves as new energy resources are becoming less accessible. Given their large asset bases, achieving growth in the production of oil and gas has been a challenge for many years. In this context, Chevron's 2020 oil reserve replacement ratio of just 74% is indicative indicates its inability to add proved reserves to its reserve base to the amount of oil and gas produced. The acquisition will enable Chevron, currently sporting a Zacks Rank #1 (Strong Buy), to grow and significantly add scale.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Occidental Petroleum’s Anadarko US Offshore LLC submitted 30 high bids, amounting to $39 million. Anadarko bid $10 million for the Alaminos Canyon Block 259 in 800-1,600 meters below the water surface. This was the highest single bid of the sale. Anadarko also offered $6 million for Green Canyon Block 551, the second-highest single bid of the sale.

Occidental Petroleum is also a leading producer in the Permian and Denver-Julesburg basins. OXY's persistent focus on Permian resources has been beneficial for the company. OXY’s core development area in the Permian region has been recording strong results. Production from this region is expected to improve further from the current levels owing to the region’s additional wells.

Shell submitted 20 high bids totaling $17.8 million. Shell’s highest bid of $4 million was for the deepwater Atwater Valley block 54. Shell, the largest leaseholder in the Gulf, believes that the 20 tracts it successfully bid could provide opportunities to grow near existing platforms or new areas.

Last month, Shell acquired stakes in five of the Santos basin blocks in Brazil’s 17th bid round, covering oil and natural gas licenses offshore. Shell acquired 100% stakes in the S-M-1707, S-M-1715, S-M-1717, and S-M-1719 blocks for $5.5 million. Besides these, the company consolidated with Ecopetrol to lease S-M-1709 located in the Santos basin

BP Exploration & Production placed 46 apparent high bids for a total of $29 million. BP is a leading producer in the deepwater Gulf and has been one of the largest investors in the region over the last 10 years. It is also a leading leaseholder in the deepwater Gulf of Mexico.

BP has a strong portfolio of exploration and production projects, which have been backing impressive production growth. All the key projects over the years have backed the company to post record production levels.

With its exceptional infrastructure and potential resources, the Gulf of Mexico offers an exceptional value proposition to tackle climate change, while maintaining jobs and economic growth.

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