Drillers Give Tepid Response To Record US Offshore Lease Sale

Drillers Give Tepid Response To Record US Offshore Lease Sale
Oil and gas drillers bid on only a tiny fraction of Gulf of Mexico acreage offered in the largest lease sale in American history.


March 21 (Reuters) - Oil and gas drillers bid on only a tiny fraction of Gulf of Mexico acreage offered on Wednesday in the largest lease sale in American history, a setback to the Trump administration's efforts to rapidly pump up investment in the region.

The Interior Department had offered up a record 77 million acres (31.2 million hectares) for development in the Gulf - an area twice the size of Florida - with discounted royalty rates on the shallower tracts as part of a broader effort by President Donald Trump to ramp up fossil fuels output.

But companies facing multi-billion dollar price tags to develop the acreage and tempted by better terms overseas bid on just 1 percent of the area up for grabs, winning with bids that averaged just $153 an acre - 35 percent below levels last year, and a fraction of those in the region in 2013 when oil prices were higher, according to the data.

In all, the auction yielded $124.76 million in winning bids, slightly more than a smaller Gulf of Mexico auction last year, but a tenth of the amount pulled in during a much smaller lease sale in the Central Gulf in 2013.

The Interior Department's Bureau of Ocean Energy Management, which administered the auction, characterized the results as robust: "I think we’re seeing continued consistent investment in the Gulf of Mexico," BOEM spokesman Mike Celata said in a conference call with reporters, adding he forecast increasing oil and gas production from the region for years.

He said 33 companies, including majors Royal Dutch Shell Plc , BP Plc, Chevron Corp, and Total SA , had placed 159 bids on 148 blocks.

But critics of the administration called the unusually large lease sale ill-timed. U.S. crude oil and natural gas output is already smashing records thanks to improved drilling technology that has opened up cheaper onshore reservoirs, and Brazil and Mexico are also competing for drilling investment in their own deepwater acreage - often with better terms.

"Offering a nearly unrestricted supply in a low demand market with a cut rate royalty and almost no competition is bad policy and an inexcusable waste of taxpayer resources," the Center for American Progress, a left-leaning policy think tank, said in a statement.

William Turner, senior research analyst at Wood Mackenzie, said the sales statistics were "on par with the all-time lows that we saw last year," referring to a lease sale in 2017 that had yielded $121 million in winning bids.

Interior Secretary Ryan Zinke had said ahead of the sale that the record-sized offering would be a "bellwether" of industry demand in the region, and billed the effort as a way to help the United States become more "energy dominant."

After the sale, Interior Assistant Secretary Joe Balash said: "Today’s lease sale is yet another step our nation has taken to achieve economic security and energy dominance."

"All-Time Lows?"

The U.S. government offers Gulf of Mexico leases annually, but usually in smaller regional batches. An auction in March 2017, for example, offered up 48 million acres in the Central Gulf of Mexico planning region.

Consultancy Wood Mackenzie had expected demand for the acreage to get a boost from higher oil prices compared with a year ago, and lower corporate taxes. But it pointed out interest would be tempered by competition from Latin America, and concerns over the impact that U.S. tariffs on steel imports could have on costs.

The National Ocean Industries Association, which represents offshore drillers, also sounded a note of caution.


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