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Market may be ripe for U.S. offshore oil and gas bids

Lease sales for the Gulf of Mexico drew little interest last year because of weak market conditions.

By Daniel J. Graeber
Market may be ripe for U.S. offshore oil and gas bids
U.S. government holds Gulf of Mexico oil and gas auction one day after BP hands out contracts for the region's Mad Dog prospect. Image courtesy of BP.

March 22 (UPI) -- Energy sector interest in the central waters of the Gulf of Mexico is high because of market conditions and U.S. government interest, a trade group said.

The U.S. Bureau of Ocean Energy Management scheduled an auction Wednesday for 48 million acres off the coasts of Alabama, Louisiana and Mississippi for oil and natural gas exploration and development. It's the 12th such auction under a five-year lease program developed during President Barack Obama's tenure in office.

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Randall Luthi, the head of the National Ocean Industries Association, said the lease sale should generate significant interest as the first such auction since Donald Trump took the presidential oath. Previous auctions drew little attention because the energy market was in a decline.

"With commodity prices and market conditions improving over the last year, and under a new administration that better understands the strategic importance of a strong oil and gas industry," the results may surprise, he said in a statement.

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Areas excluded in the lease include a marine sanctuary and those areas beyond the U.S. economic zone.

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With nearly all of the offshore oil and natural gas produced in the United States coming from the Gulf of Mexico, the BOEM has characterized the area as "one of the world's most prolific hydrocarbon basins."

Lease sales last year brought few bidders to the table. The first 11 lease sales under the five-year program brought in $3 billion in bid revenues. An auction for the western portion of the Gulf of Mexico last year attracted bids from three companies for a total $18 million in bids. Those three companies took up only a fraction of the 23.8 million acres on the auction block, which the government attributed to a weak energy market characterized by low crude oil prices.

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"The offshore energy industry remains forward looking," Luthi said.

Wednesday's auction comes one day after British energy company BP awarded a contract to a division of oilfield services company Schlumberger for engineering, procurement and construction at the Mad Dog 2 development in the Gulf of Mexico.

The contract is significant for the market as a sign of recovery. Companies catering to the exploration and production side of the oil and gas industry were impacted negatively by the downturn in crude oil prices last year, which left big energy companies short on spending cash.

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