U.S. Auctions Gulf Offshore Leases

On March 19 the U.S. Department of Interior sold leases on tracts of ocean in the Gulf of Mexico for oil and gas exploration. The sale was to be two-part – an auction for leases in the Central Gulf and the Eastern Gulf, but no companies bid on the latter. The eastern Gulf is believed to be less rich in fossil fuel reserves.

After reaching an agreement with the U.S. EPA over the Deepwater Horizon disaster, which spilled nearly five million gallons of crude oil into the Gulf and killed 11 people, BP was allowed to return to bidding. The EPA suspended BP for 16 months after concluding the company had not done enough to correct its failures. BP sued to have its suspension lifted, and the two sides came to an agreement earlier this month. BP submitted 31 bids and won 24 of them, according to Jennifer Dlouhy of Fuel Fix. BP submitted 8 bids in the Mississippi Canyon block, located near the site of the 2010 Macondo well blowout.

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Another interesting development were leases along the U.S.-Mexican border, areas that were opened up after Congress passed a treaty governing cross-border oil exploration. ExxonMobil appears to have won three of these tracts.

Also, the Department of Interior auctioned off 519 tracts of the Central Gulf that were obtained by the federal government. The unique circumstances in this auction were thought to have sparked greater interest than usual. On the other hand, several major oil companies over the past few months have promised to reduce expenditures on elephant projects after posting gloomy numbers in their 2013 earnings reports. And while the Gulf of Mexico remains a lucrative play for oil and gas majors, onshore shale plays have proven to be highly productive with less risk.

Winning bids totaled only $850.8 million. This was down from the $1.2 billion raised from the 2013 auction of Central Gulf leases, and much lower than the $1.7 billion raised the year before. At the cut off time for receiving bids on March 18, there had been 380 bids for 326 blocks in the Central Gulf.

By James Burgess of Oilprice.com