Mixed results for Trump's first oil and gas auction for Gulf

Energy companies put in bids that covered only a tiny fraction of what was on the table, though the bids they did submit were high.
By Daniel J. Graeber Follow @dan_graeber Contact the Author   |  Aug. 17, 2017 at 5:47 AM
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Aug. 17 (UPI) -- The largest lease sale in the U.S. Gulf of Mexico, and the first under President Trump's administration, generated mixed results for high bids and coverage.

The first 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. The U.S. Interior Department said the results of lease underscored the government's efforts to stimulate domestic development with fewer restrictions.

"The sale offered the largest amount of acreage in the history of the federal offshore program in the Gulf, including parcels offshore Texas, Louisiana, Mississippi, Alabama, and Florida," the department stated.

The area up for bids covered 75.9 million acres for oil and gas exploration and development and included a reduced royalty rate to attract bidders to shallow-water areas.

Lease sales in the post-$100-per-barrel era brought few bidders to the table. 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. 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.

Most of the bids in the latest auction were for deep-water areas, despite the effort to attract companies to shallower waters. When the government cut the royalty rates, 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.

Combining separate leases for central and western Gulf waters from 2015 reveal greater interest in shallower areas, those with water depths of less than 600 feet. The price for Brent crude oil, the global benchmark, was about $3 less per barrel on this date in 2015.

Randall Luthi, the president of trade group National Ocean Industries Association, said before the gavel pounded Wednesday that sustained weakness in the energy market may create some apprehension for spending.

"While the results of today's Gulf of Mexico oil and gas lease sale reflect market realities, they also demonstrate the offshore oil and gas industry's commitment to the U.S. Gulf of Mexico, even with extended low commodity prices and lingering regulatory dysfunction," he said in a statement.

President Donald Trump has put fossil fuels at the center of his energy policy and has used the power of the office to unravel regulations imposed by his predecessors that he said were standing in the way of an energy dominant United States.

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