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Gulf of Mexico oil and gas auction draws modest interest

Even though millions of acres were on the auction block, oil and gas companies committed only a few million dollars more in investments.

By Daniel J. Graeber
Gulf of Mexico oil and gas auction draws modest interest
Oil and gas operators are still holding back on big new investments in the Gulf of Mexico. Photo courtesy of the U.S. Bureau of Ocean Energy Management

March 22 (UPI) -- The largest auction for drilling off the U.S. coast brought in only modest interest as sector players remain cautious about market recovery, analysts said.

The U.S. Bureau of Ocean Energy Management steered an auction Wednesday from New Orleans for 77 million acres of deep- and shallow-water tracts in the U.S. Gulf of Mexico. The largest lease sale in U.S. history, the auction was part of an effort by U.S. President Donald Trump to ensure the country is a global superpower when it comes to energy.

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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.

High bids for the auction were tabled by supermajors like BP and Royal Dutch Shell, companies that have the deepest pockets. The $124.8 million in high bids was about 2.5 percent higher than last year's auction in August.

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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, miniscule when compared to Wednesday's offering.

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William Turner, senior research analyst at Wood Mackenzie, said in comments emailed to UPI the auction, with 60 percent more acreage up for grabs, shows the industry is still wary about making big bets.

"Although we are in a climate where a lot of projects begin to make sense again in the Gulf of Mexico, operators appear to still be in a 'wait and see' mentality when it comes to exploration, looking for stability in oil prices," he said.

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In August, when the last Gulf of Mexico auction was held, the price for Brent crude oil, the global benchmark, was in the low $50 per barrel range. Brent on Thursday was close to $70 per barrel, though it's been as low as $61.49 per barrel this year.

Randall Luthi, the head of the National Ocean Industries Association, an offshore trade group, said the auction should be considered a success given that crude oil prices are still low by historic standards.

"While the outlook is promising, it also comes with a note of caution that with companies looking globally for exploration opportunities, 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," he said in a statement.

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RELATED Oil development costs lower, but volume is still a question

Much of the oil from the basins off the coast of Brazil is buried underneath a thick layer of salt on the ocean floor and producers have been able to crack into that in recent years. Output from pre-salt basins has accelerated since 2009 as exploration and production technology acclimates to the region's tough conditions.

According to an earlier assessment from Wood Mackenzie, offshore Brazil is among the "hot oil plays" of the world.

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