US BOEM Proposes First Offshore Wind Auction in the Gulf of Mexico
On February 24, 2023, the Bureau of Ocean Energy Management (BOEM) published a Proposed Sale Notice (PSN) in the Federal Register that includes three proposed lease areas in the Gulf of Mexico for offshore wind development. One lease area is in the Lake Charles Wind Energy Area (WEA), offshore of Lake Charles, Louisiana, and two are in the Galveston WEA, offshore of Galveston, Texas. The lease areas together total approximately 301,746 acres with the potential to power almost 1.3 million homes. This proposed competitive auction will be the first for the Gulf of Mexico.
BOEM has previously held competitive auctions for leases in the Atlantic Ocean from Massachusetts to North Carolina, and leases in the Pacific Ocean off the coast of California. BOEM’s previous auctions have resulted in bid values ranging from $315 million collectively from bidders for two leases off the coast of North Carolina to $4.37 billion collectively from bidders for six leases in offshore New York.
Overview of the PSN and Forthcoming Final Sale Notice
The PSN’s publication in the Federal Register initiated a 60-day public review and comment period. The PSN provides detailed information about, the proposed lease areas, proposed lease provisions and conditions, and auction details, among other information. The development of the Final Sale Notice (FSN) will be informed by comments received during the PSN comment period. The FSN will announce the final details, such as the lease areas to be auctioned, the auction details and lease stipulations. The FSN will be published in the Federal Register 45 days before the lease sale and will provide the date and time of the lease auction. BOEM proposes to hold a mock auction that is open only to qualified bidders—those who have met the requirements and deadlines for auction participation, including submission of the bid deposit. Final details of the mock auction will be provided in the FSN.
Eight entities are currently qualified to participate in the proposed Gulf of Mexico lease auction and qualification for two entities is pending, according to the PSN. Not surprisingly, several of the qualified bidders are companies that already operate oil and gas assets in the Gulf of Mexico. Additional bidders may be qualified to participate in the proposed lease auction by submitting the required qualification materials to BOEM by the end of the public comment period. A final list of qualified bidders will likely be included in the FSN.
Bidders must submit an original Bidder’s Financial Form (BFF) in connection with this lease sale —BOEM will not consider BFFs submitted for previous lease sales. BFFs must be submitted by the date listed in the FSN and must list any affiliates participating in the same auction, among other disclosures. Affiliated entities are not permitted to compete against each other, and, where two or more affiliated entities have qualified for an auction, they must decide which one will participate.
Multiple-Factor Bidding System
Similar to how it conducted the North Carolina and California competitive auctions, BOEM is proposing to conduct a multiple-factor bidding system involving a monetary factor and up to two non-monetary factors. With each competitive auction, we continue to see the non-monetary factors evolve and grow in size. BOEM is proposing to grant bidding credits to potential bidders for commitments to (1) support the offshore wind energy industry, either through workforce training programs and/or the development of a domestic supply chain, and (2) establish and contribute to a fisheries compensatory mitigation fund to mitigate the potential adverse effects for commercial and for-hire recreational fisheries resulting from offshore development in the Gulf of Mexico.
Support for workforce training must increase the supply of fully trained personnel for offshore wind energy project development through union apprenticeships or training for project planning, design, construction, operation, and maintenance; for crewing vessels used in offshore wind energy project development; or for manufacturing project equipment components. Support for the domestic supply chain must provide overall benefits to the domestic offshore wind industry (not the lessee’s project alone); result in the development of new capacity (including vessels); reduce upfront capital cost for manufacturing offshore wind energy project components; or develop a supply chain supporting such components that may be used for hydrogen production.
Fisheries mitigation funds would prioritize claims for fishing income loss and gear loss and damage, with any excess funds going toward efforts such as research into how fisheries may coexist with offshore wind energy projects or gear upgrades and transitions for commercial fishermen operating within a project. The fisheries compensatory mitigation fund must be independently managed by a third party.
A bidder may elect to qualify for one or both of the bidding credits. Bidders can receive a 20% credit for workforce training and/or supply chain development, and a 10% credit for establishing a fisheries compensatory mitigation fund. The credits are additive, so a bidder who qualifies for both potential credits would receive 30% of the cash bid. To qualify for either credit, a bidder must include a conceptual strategy in its BFF including verifiable actions it will take in order to satisfy the requirements for the credit(s). The deadlines for the BFF and conceptual strategy will be announced in the FSN. BOEM will appoint a panel to review the non-monetary component after the BFFs have been received. Following the review, BOEM will notify a bidder if it qualifies for credits, and each particular bid will represent the sum of a monetary (cash) amount and the non-monetary factors (bidding credit(s)).
Potential Mechanics of the Auction
BOEM proposes to allow each qualified entity to bid for one lease per region (Texas WEA and Louisiana WEA) and ultimately acquire one lease area per region via simultaneous auctions. BOEM refers to this as the “one-per-customer” rule for each region. BOEM is, however, seeking feedback on potential alternative bidding processes, specifically including whether to offer the two regions in two separate auctions that would be conducted simultaneously or one auction with both areas offered. BOEM is also seeking comments and recommendations on how many lease areas from the Galveston WEA should be offered and which lease area in the Galveston WEA would be preferred if only one is chosen.
Qualified bidders must submit a $2 million deposit to bid for a lease area. If the FSN allows bidders to win up to two lease areas (one per region), a bid deposit of $4 million would be required to submit bids in both regions. Bid deposits would be due no later than the date specified in the FSN. Typically, this deadline is approximately 30 calendar days after the publication of the FSN.