First Trump offshore lease sale revised to reflect market conditions

The gavel pounds for the sale of 76 million acres in the Gulf of Mexico next month.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |  July 14, 2017 at 6:32 AM
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July 14 (UPI) -- Under the first offshore lease for the administration, President Trump's office said it was lowering royalty rates to reflect market conditions.

U.S. Interior Secretary Ryan Zinke announced the first sale for offshore oil and gas acreage under a new five-year plan would take place next month. It's part of an effort by President Donald Trump to streamline the lease process and highlights the importance oil and gas plays in his administration.

"As a global energy leader, we will foster energy security and resilience for the benefit of the American people," Zinke said in a statement.

The administration is offering 76 million acres in the Gulf of Mexico for auction. All told, the administration estimates the entire region holds about 550 million barrels of oil and 1.25 trillion cubic feet of natural gas.

Royalty rates for shallow-water areas were lowered from 18.75 percent to 12.5 percent to reflect recent markets conditions and encourage competition, the administration said.

"This will ensure appropriate resource development and further our energy dominance strategy," said Vincent DeVito, an energy policy counselor for Zinke.

Crude oil prices have come under pressure in the second half of the year from strong U.S. oil and production and doubts about whether the Organization of Petroleum Exporting Countries can balance the market through coordinated declines.

West Texas Intermediate, the U.S. benchmark for the price of oil, was trading near $46 per barrel early Friday, relatively on par with the price at this time last year, but 14 percent below the peak for the year. A recent report from the U.S. Energy Information Administration found that parts of the Gulf of Mexico are less vulnerable to market swings, however, because of the time it takes to get offshore operations up and running.

Trevor Crone, a rig analyst for S&P Global Platts, told UPI that shallow-water rig operators work in a similar market environment as land-rig operators.

"Quick on location and quick off," he said.

Randall Luthi, the head of the National Ocean Industries Association, said the decision to lower royalty rates was a good way to attract companies to offshore basins.

"A 12.5 percent royalty rate is far better than a 0 percent royalty rate, which is what the government receives if there are no bids," he said in a statement.

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