Drillers Give Tepid Response To Record US Offshore Lease Sale

"The United States must continue to evaluate how to keep the Gulf of Mexico and other parts of the U.S. outer continental shelf attractive in light of competition from Brazil and Mexico," it said in an emailed statement.

Drillers have been trying to trim their Gulf of Mexico drilling costs in recent years to make certain projects there more competitive. BP, for example, has said its Mad Dog 2 platform will be economic with crude at just $40 a barrel.

Current oil prices are over $65 a barrel.

BP, which bid over $20 million on 27 parcels on Wednesday, structured its bids around its existing production platforms and areas it has already identified as being "highly prospective," spokesman Jason Ryan said in a statement.

Still, many new projects in the deepwater Gulf of Mexico come with multi-billion dollar price tags and require major investment up front - making them a tough sell.

Some U.S. oil companies like Exxon Mobil Corp are focusing on new deepwater projects outside of the United States, where royalties and tax structures can be more favorable.

"In terms of Exxon, they have plenty of things to do in Guyana, so why bother getting too active in this round in Gulf of Mexico," said Lysle Brinker, a research director at IHS Markit, noting Exxon's absence from the bidding.

In an effort to pump up interest, the Interior Department had cut the royalty rate companies must pay in shallow offshore waters by a third to 12.5 percent, and is considering cutting the rate for deeper waters too.

The BOEM's Celata pointed out that shallow-water tracts received 43 bids on Wednesday, an increase from past lease sales that he attributed to the lower royalty rates.

The administration is eyeing further vast lease sales offshore in the future, having proposed opening up parts of the Arctic, Atlantic and Pacific - an idea that has faced pushback from several governors in U.S. coastal states.

Democratic lawmakers have also warned the Interior Department not to extend the lower royalty rates to deepwater acreage, saying the move would short-change taxpayers.

(Additional reporting by Jessica Resnick-Ault in New York, Valerie Volcovici in Washington and Gary McWilliams in Houston; Writing by Richard Valdmanis; Editing by Marguerita Choy and Paul Simao)