A federal lease sale in the Gulf of Mexico Wednesday generated $178 million in winning bids, raising expectations that drillers’ confidence in the region is rising.
After a March auction that had been billed as the largest in U.S. history only generated $125 million, many began to wonder whether the Gulf’s best days were behind it, as drillers looked to newer fields in countries with less restrictive drilling regulations.
“Expectations were muted going into this lease sale,” wrote William Turner, a senior research analyst at Wood Mackenzie. “However, with an increase in competitive bids and dollar amount from the last round, companies demonstrated their continued confidence in the region.”
The largest winning bid was made by the New York-based oil company Hess, which $25.9 million for a deepwater block near BP’s Na Kika platform. In total, 29 companies participated in the auction, bidding successfully on approximately 800,000 acres in the Gulf.
There was also interest in blocks further afield from the more established oil fields, with Exxon Mobil and Equinor among the companies betting they could strike oil where others had not.
“This reflects the steady increase in oil price and competitive [return on investment] now due to much more efficient practices in the Gulf of Mexico,” Turner wrote.
Following the lease sale, oil and gas lobbyists again urged Interior Secretary Ryan Zinke to reduce the federal royalty rate for deepwater leases. Zinke had considered reducing the current 18.75 percent rate but earlier this year announced he would not, citing the increased interest in deepwater fields.
“Offshore investments are globally competitive and reducing royalty rates on deepwater leases could go a long way to boosting future Gulf activity,” Louisiana Mid-Continent Oil and Gas Association President Chris John said in a statement.
This article first appeared on the Houston Chronicle – an Energy Voice content partner. For more from the Houston Chronicle click here.
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