Exxon Eyes CCS in Active US Gulf Lease Sale

US supermajor Exxon Mobil submitted high bids on nearly 100 blocks in shallow federal waters off the coast of Texas as it positions itself for an estimated $100 billion carbon capture and sequestration (CCS) project in the Houston Ship Channel.

Exxon’s shock splash on the US Gulf of Mexico Continental Shelf highlighted one of the most active US Gulf lease sales in recent years. Lease Sale 257, which the Biden administration held under court order, attracted nearly $192 million in total high bids across 308 blocks.

Exxon was named the high bidder on 94 tracts stretching from due east of Port Aransas to just south of Port Arthur, Texas. It placed bids of $158,400 on each block, for a total cash outlay of $14.9 million.

Exxon Makes a Splash in US Gulf Lease Sale 257

The chunky blocks of acreage give Exxon a dominant position in what it likely views as some of the region's best geologic areas for carbon sequestration, just as competition for such access starts to heat up.

“We will work with the Department of Interior on plans for the blocks once they are awarded,” an Exxon spokesman told Energy Intelligence. “Exxon Mobil takes a long-term business view. We are evaluating and analyzing the seismic/subsurface geology for future commercial potential.”

New Shelf Role?

Exxon and other major oil companies were once quite active on the Gulf shelf but have long since abandoned oil exploration and production in the region, leaving it to smaller, mostly private rivals. Exxon is currently looking to sell most of its remaining deepwater Gulf assets as well.

In April, Exxon announced plans to develop one of the world’s most ambitious CCS projects in and around the Houston Ship Channel. Exxon is looking to partner with the industrial area’s 50 largest emitters to capture some 100 million tons per year of carbon dioxide by 2040, requiring an investment of at least $100 billion.

The Texas-based company has been engaged in discussions with the Biden administration around incentives and policies needed to make the CCS plan commercially viable. To wit, the bipartisan infrastructure bill signed into law this week includes language amending the Outer Continental Shelf Lands Act (OCSLA) of 1953 to allow leasing and permitting specifically for CCS.

The US Department of Energy estimates the US Gulf Coast region alone could safely store more than 500 billion tons of CO2 offshore — more than 100 years' worth of US industrial and power generation emissions.

Activity Despite Uncertainty

OCSLA is the same law invoked by the judge forcing the Biden administration to hold Wednesday’s lease sale after President Joe Biden attempted to end the federal oil and gas leasing program by executive order earlier this year. The administration is still fighting to end future auctions.

Uncertainty over future lease sales likely fueled much of the higher activity; the 308 blocks receiving bids marked the highest such total in more than a decade.

Most of the usual suspects came out to play on Wednesday, largely continuing their well-established strategies of exploring and consolidating near existing hubs and fields. As such, there was little competition for specific blocks as operators stayed largely within their own zip codes, with a handful of exceptions:

• Chevron led all companies with apparent high bids totaling $47.1 million for 34 blocks. Most of its bids were scattered around prolific areas in Mississippi Canyon and Green Canyon (GC), some of them near current assets and others in what appear to be more exploratory areas.

• Occidental Petroleum submitted the next highest bid total with around $39 million for 30 blocks, making it one of the company’s most active lease sale showings since it acquired Anadarko Petroleum. Oxy also submitted what was easily the highest bid of the auction with an approximately $10 million offer for Alaminos Canyon (AC) Block 259, the centerpiece of a six-block chunk Oxy secured in the area. Oxy’s AC target was notable for the relatively high value of the bids and because it represents a rare departure for the company from its many existing production hubs. The AC tracts, previously held and relinquished by Royal Dutch Shell and Chevron, are in a remote area with no existing infrastructure, making it a rank exploration play.

• BP acquired the second most blocks after Exxon with 46 on the third-highest total cash outlay of $29 million. While the UK major stayed mostly close to its current infrastructure, it also established positions in truly frontier areas in De Soto Canyon, where there has been scant activity, and in deep Lloyd Ridge, where there are no existing discoveries. BP teamed with Talos Energy to edge out Chevron in a bid for GC 777 near their Puma West discovery, one of the most promising Gulf finds in years. Chevron is currently drilling a well called Panther on an adjacent block, all within tieback range of BP’s soon-to-be-installed Argos platform.

• Shell rounded out the top four spenders with $17.9 million in apparent high bids for 20 tracts. Its most notable bid was on a block just west of the ultra-high-pressure Shenandoah field, operated by private player Beacon Offshore Energy. Bill Langin, Shell’s senior vice president of deepwater exploration, said the Gulf “remains advantaged in so many ways, including its strong margins and low [greenhouse gas] intensity.”