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U.S. Swings and Misses With Latest Offshore Lease Auction

The latest US auction for offshore leases failed to attract as much interest as many had hoped, with the results mildly superior to the previous auction for offshore leases conducted in March of this year.

Some industry experts were hoping to use the auction to gauge that status of the market recovery: a prolific auction would likely indicate a more complete recovery, whereas a bust would indicate that the recovery has a ways to go.

The lease, which took place today, successfully auctioned off a mere 1 percent of the available blocks.

While that sounds abysmal, the auction offered a staggering number of blocks: more than 14,000 sites were up for auction, sprawling a vast 78 million acres on the US side of the Gulf of Mexico thought to hold 48 billion barrels of oil and 141 trillion cubic feet of natural gas.

Analysts had predicted a lackluster response to the previous auction in March in what was at the time the largest oil and gas lease sale ever in the United States’ Gulf of Mexico—and those predictions came true, generating less than $140 million in winning bids. Today’s auction was a bit more of a success, generating $178 million in winning bids, but was still underwhelming.

The winners—including Exxon Mobil Corp (winner of 25 blocks), BP Plc (winner of 19 blocks), Hess Corp (winner of 16 blocks), and Equinor (winner of 16 blocks) and Talos Energy Offshore, Houston Energy, and W&T Offshore—bid on a total of 144 parcels, according to Reuters, with deepwater blocks attracting the most attention.

While the Trump Administration was likely hoping for a more robust turnout, the interest in deepwater blocks was somewhat surprising given the previous pushback from oil companies who had lobbied the Interior Department for lowered royalty rates. The Interior Department declined to reduce the royalty rates, which are currently substantial with deepwater at 18.75%, and shallow water parcels at 12.5%.

By Julianne Geiger for Oilprice.com

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  • Randy Verret on August 16 2018 said:
    All this tells me is that the industry, risking shareholder money is the key decider in what is "prospective" and what is not at any lease sale. The folks at Interior may want to look at the results of the last two GOM auctions for guidance and strategy in other outer continental shelf matters moving forward...

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