March 20, 2019 / 11:05 AM / 9 months ago

Low prices spark interest in latest U.S. Gulf oil, gas lease sale

(Reuters) - The Trump administration’s fourth major auction for oil and gas leases in the U.S. Gulf of Mexico received $244 million in high bids on Wednesday, reflecting an uptick in interest from drillers attracted to the region’s low prices.

FILE PHOTO: Men in construction hats are seen aboard Chevron's Petronius oil platform, located 100 miles (161 km) off the coast of New Orleans, in the Gulf of Mexico June 3, 2008. REUTERS/Jessica Rinaldi

Of the 78.5 million acres (31.77 million hectares) offered, companies submitted bids on 1.26 million acres, or about 1.6 percent of the total, an increase from two sales last year when about 1 percent of acreage offered received bids.

“We’re on a positive slope,” Mike Celata, the Bureau of Ocean Energy Management’s regional director for the Gulf of Mexico, said on a conference call with reporters.

Despite the higher revenue and acreage, the price per acre was below that of the last sale held in August, about $193 an acre compared with $222 an acre.

“We saw a modest increase in overall spend, but it was outpaced by the increase in acreage leading to lower amount per acre, furthering our hypothesis that it is a buyer’s market in the Gulf of Mexico,” William Turner, senior research analyst at Wood Mackenzie, said in a statement.

High bids of $244.3 million were higher than the 2018 sales but were still far short of the revenue generated by Central Gulf sales between 2013 and 2015, which ranged from $538 million to $1.2 billion.

Oil major Royal Dutch Shell Plc and Norway’s Equinor were among the winning bidders, with Shell taking 87 tracts, BOEM said. Equinor had the highest bid of nearly $24.5 million for a single tract.

Of the 227 tracts that received bids, 213 has been previously leased but were released back to the government since 2014 when the price of oil CLc1 dropped.

“What you are seeing is companies looking at prospects that had been identified in the past and deciding it was time to pick up some more acreage,” Celata said.

The outcome of the lease sale was the latest signal from the industry about their interest in U.S. waters as President Donald Trump’s Interior Department prepares to release a long-awaited proposal to expand offshore drilling, possibly to new areas of the Atlantic, Pacific and Arctic.

Offshore drilling is a crucial part of the Trump administration’s “energy dominance” agenda to open up more federal land and waters to energy exploration.

But most of the recent U.S. boom in oil production has been focused onshore, where it is cheaper to drill than in deepwater.

Reporting by Nichola Groom; editing by Marguerita Choy and Lisa Shumaker

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