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Good results from U.S. offshore auction, but expectations low

Potential drillers showed a willingness to invest in the U.S. waters of the Gulf of Mexico, though a key industry voice said the auction was no "barn burner."

By Daniel J. Graeber
Good results from U.S. offshore auction, but expectations low
Industry experts said the results of a lease sale in the U.S. waters were indicative of recovery, though expectations were low. File Photo by A.J. Sisco/UPI | License Photo

Aug. 16 (UPI) -- Results from a U.S. auction for drilling rights in the Gulf of Mexico showed companies are willing to spend again, but expectations were low, experts said.

An auction Wednesday for rights to drill into the U.S. waters of the Gulf of Mexico secured $178.1 million in high bids from 29 different companies. That's an increase of 43 percent from the last lease sale in March.

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William Turner, a research analyst at consultant group Wood Mackenzie, said less acreage was on the auction block and the industry didn't get an incentive from lower royalty rates like they wanted so expectations were low.

"However, with an increase in competitive bids and dollar amount from the last round, companies demonstrated their continued confidence in the region," he said in a research note emailed to UPI.

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U.S. Interior Secretary Ryan Zinke in April went against policy recommendations by standing pat on royalty rates, arguing pro-industry moves by President Donald Trump would support the industry on momentum alone. Industry groups, however, said it would be tough to stay competitive without incentives like an adjustment to royalty rates.

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Randall Luthi, the president of trade group National Ocean Industries Association, said higher oil prices, deregulation efforts by the Trump administration and lower day rates from rig companies all added up to a slow recovery for the offshore segment of the U.S. energy sector.

"While not a barn burner, Lease Sale 251 tops the previous Gulf sale in terms of increased participation, increased competition for offerings, and bid amounts," he said in a statement.

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The government estimates the entire region holds about 48 billion barrels of undiscovered and technically recoverable oil and 141 trillion cubic feet in natural gas.

Among the winners were Norwegian energy company Equinor and U.S. supermajor Exxon Mobil, which placed big bets on remote acreage in the Gulf of Mexico. Hess Corp., meanwhile, put down $24.9 million for a site close to one of BP's existing platforms, though that block is near an exploration area that's so far been dry.

Elsewhere, an article in Politico published Wednesday suggests energy sector representatives are lobbying aggressively to Florida lawmakers to get them to open up their coast to drillers. U.S. Sen. Bill Nelson, D-Fla., a long-time opponent of more offshore drilling, said that, with space and military programs centered on Florida's waters, better federal oversight was expected.

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In a statement emailed to UPI, Nelson, who is fighting for his senate seat, said the industry is moving to upset years of precedent in Florida's waters.

"We've been trying to get answers and find out what's on the table," he said. "Now we're reading about what might be under the table."

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