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Industry optimistic about Gulf of Mexico drilling auction

The Gulf of Mexico would account for about 15 percent of total U.S. production if fourth quarter estimates are accurate.

By Daniel J. Graeber
Industry optimistic about Gulf of Mexico drilling auction
Incentives and improved market conditions could mean more interest in the U.S. Gulf of Mexico, a trade group says. Photo courtesy of the U.S. Bureau of Ocean Energy Management

March 21 (UPI) -- The nature of an auction for oil and gas drillers interested in the U.S. Gulf of Mexico could open new doors for the offshore sector, a trade group said.

The U.S. Bureau of Ocean Energy Management holds an auction Wednesday for more than 77 million acres in federal waters offshore Alabama, Florida, Louisiana, Mississippi and Texas for oil and gas exploration and development.

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The BOEM estimates the reserve potential in the auction area ranges between 210 million barrels to 1.12 billion barrels and between 55 billion and 4.42 trillion cubic feet for natural gas.

The scope of the auction makes it the largest offshore auction in U.S. history.

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Ahead of the gavel, Randall Luthi, the president of the National Ocean Industries Association, said improved market conditions, incentives in the lease and the sheer size suggests it could be an improvement over previous auctions in the Gulf of Mexico.

"The results of recent sales in the Mexican side of the Gulf of Mexico demonstrate that the United States cannot tread water by offering the same acreage time and time again without additional incentives," he said in a statement. "The good news is that as commodity prices and market conditions have slowly improved, the Trump administration has worked to safely reduce regulatory burden and also incentivize industry investment by offering a 12.5 percent royalty rate for shallow water leases."

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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.

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A 2017 lease covering the entire southern coastal region, save for protected areas, generated $121 million in high bids for 90 tracts covering nearly 510,000 acres. An auction for the western portion of the Gulf of Mexico in 2016 attracted interest from only 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.

The federal government estimates total U.S. petroleum production will top 11 million barrels per day by the fourth quarter. About 15 percent of that would come from the U.S. Gulf of Mexico.

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