Markey to Interior: Are Taxpayers Getting Fair Value in Offshore Oil Lease Sales?

Lack of Competition among Companies in Offshore Auctions May Mean Less Money for Taxpayers

WASHINGTON (January 11, 2012) - Following BP's Deepwater Horizon disaster, the oil and gas industry and their Washington allies attacked the Obama administration for its efforts to ensure the safety of offshore drilling. Offshore resources were being locked up, the industry said. Leases weren't being sold quickly enough in the oil- and gas-rich waters of the Gulf.

So last month, when the Department of Interior held the first offshore lease auction since the BP oil spill, you'd think companies would have lined up around the block to bid on leases. Instead, just 20 companies bid on 191 offshore tracts covering 1.1 million acres, and 80 percent of those tracts received a single bid. That left more than 3,700 tracts, covering 21 million acres, with no bids at all. And just three companies -- ConocoPhillips, ExxonMobil and BP -- combined to submit 71 percent of the bids.

This lack of competition -- which is typical of offshore auctions but was even more pronounced in December's auction -- may mean taxpayers are not receiving the maximum return from leasing offshore drilling rights to oil and gas companies. In response, Rep. Ed Markey (D-Mass.), the top Democrat on the Natural Resources Committee, today expressed his concerns to Interior Secretary Ken Salazar about the current offshore auction system, which uses a simple sealed-bid format, and asked whether reforms could be adopted to boost competitive bidding.

"I am concerned about the lack of competitive bidding in auctions for drilling rights in the Gulf and elsewhere, and I want to make sure taxpayers are receiving fair value in sales of America's offshore resources," writes Rep. Markey to Secretary Salazar.

The full letter is available HERE.

Historically, less than 25 percent of tracts receiving bids attract more than one bid. In the past ten Gulf of Mexico lease sales, dating back to August 2005, more than 39,000 tracts totaling almost 211 million acres were offered. Of these, just 3,600 (totaling almost 20 million acres) received bids-not even ten percent of the tracts offered-and the average number of bids on those tracts was just 1.5 bids.

The Markey letter notes that "the story is similar in the Arctic." There were more than 5,200 tracts offered in Beaufort Sea lease sales held in 2003, 2005, and 2007. Not even 250 of these tracts received bids. In the 2007 sale, six companies bid on 92 tracts, with only three instances of multiple bids. And in the 2005 sale, just four companies bid on 121 tracts without a single instance of multiple bids.

In the letter, Rep. Markey asks Secretary Salazar whether a multi-stage bidding system -- such as the one now under consideration for offshore wind lease sales, and what the Federal Communications Commission already uses to sell spectrum for cell phones and other technologies -- would be a better way to lease offshore drilling rights. Rep. Markey also asked Secretary Salazar how the Interior Department monitors possible collusion and reviews its own performance in assessing the value of offshore lease tracts.

Rep. Markey concluded, "If the oil and gas industry won't even bid on most of the offshore lands the Interior Department is offering up to them in the Gulf of Mexico, where there's plenty of oil and gas and they're already allowed to drill, they clearly don't need to access environmentally sensitive areas, such as Georges Bank off of the coast of Massachusetts, where scientists tell us there is a far lower likelihood of major oil and gas supplies."