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The biggest U.S. offshore oil and gas grab to attract the biggest firms

A lease in 2015, before the energy market downturn, brought in high bids roughly three times as high as one earlier this year.

By Daniel J. Graeber
The biggest U.S. offshore oil and gas grab to attract the biggest firms
The biggest and most established energy companies will find opportunities in the deep waters of the U.S. Gulf of Mexico, an analyst said. File photo by A.J. Sisco/UPI | License Photo

Oct. 25 (UPI) -- With the opening of what's described as the biggest grab of U.S. offshore assets ever, an analyst said the region is best suited for the biggest of firms.

U.S. Interior Secretary Ryan Zinke said the next auction of more than 75 million acres of federal waters in the Gulf of Mexico was the largest ever in the national history of offshore development.

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"In today's low-price energy environment, providing the offshore industry access to the maximum amount of opportunities possible is part of our strategy to spur local and regional economic dynamism and job creation and a pillar of President Trump's plan to make the United States energy dominant," Zinke said in a statement.

Crude oil prices are low by historic standards, trading Wednesday at about $27 per barrel less than the price at this time in 2014, before the downturn. The market bottomed out last year, starving major energy companies of the capital needed for big investments, which sidelined several projects.

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The government estimates the lease area holds as much as 1.1 billion barrels of oil and 4.4 trillion cubic feet of natural gas. Water depths range from nine feet to more than 11,000 feet.

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Cindy Giglio, a principal energy merger and acquisition analyst at IHS Markit, told UPI the Gulf of Mexico remains an attractive return on investment, in part because of existing infrastructure and an available workforce.

"The deepwater Gulf of Mexico may be best suited for the larger, integrated and exploration and production companies because of the long-investment timeframe, scale, and technological expertise required," she said.

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In a report published Tuesday, IHS said investors may be drawn still to offshore basins, even with the rise of U.S. shale. The report found the deepwater Gulf of Mexico accounts for $3.2 billion, or 17 percent of the global deepwater assets on the market. About 20 percent of the global deepwater assets on the market are in European waters, where opportunities represent about $3.6 billion.

Nevertheless, Giglio said offshore United States still continues to attract capital and yield sizeable new discoveries. Randall Luthi, the head of the National Ocean Industries Association, said the lease sale offers an "unprecedented" opportunity to prop up the U.S. economy and improve domestic energy security.

The White House under President Donald Trump, a pro-oil former real estate mogul, said energy dominance means a U.S. economy free from pressures from foreign producers who use energy as "an economic weapon." Crude oil exports, meanwhile, would increase U.S. leverage overseas, the government said.

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Higher U.S. oil exports are supported by the discount for West Texas Intermediate, the U.S. benchmark for the price of oil, relative to Brent, the global benchmark. Harold Hamm, the CEO of shale oil company Continental Resources, said last week that spread shouldn't exist because of existing transport corridors.

Oil prices have been rebounding strongly for most of the latter half of the year. The price for Brent crude oil is moving close to $60 per barrel and holds a premium over WTI of close to $6 per barrel.

An auction for the western portion of the Gulf of Mexico last year attracted bids from only three companies for a total $18 million in bids. The first lease in the Trump administration, by comparison, generated $121 million in high bids. A lease sale in 2015, when Brent prices were about $4 per barrel less than today, yielded $539 million in high bids.

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