Interest ticks up in US lease sale: Correction

Corrects BP's high-bid total

The latest auction for oil and natural gas leases in the US Gulf of Mexico generated $244mn in high bids today, almost double last year's total but still below amounts generated before the surge in onshore shale exploration.

The lease sale resulted in 227 high bids from 22 companies — a smaller set of participants compared with the March 2018 lease sale even though the sale revenue was higher. The winning bids cover just a fraction of more than 78 million acres (316,000 km²) area offered, at 1.3mn acres.

Norway's Equinor submitted the highest bid, at $24.5mn, for a Mississippi Canyon block. Shell submitted the highest number of high bids, 87, for a total of almost $85mn. US independent producers Anadarko and Hess were the next highest bidders by the dollar amount of high bids, with $24mn and $18mn respectively. BP had 23 high bids for $15.5mn, including one submitted jointly with LLOG Exploration. Total submitted two high bids for a total of $15mn.

The Interior Department's Bureau of Ocean Energy Management (BOEM) offered acreage in federal waters offshore Texas, Louisiana, Mississippi, Alabama and Florida. That kept up the recent practice of offering all available acreage for offshore development, instead of holding sales separately in the western, central and eastern parts of the Gulf.

The lease revenue from Gulf-wide sales remains below pre-2015 levels. The lease sale, for example, for the central part of the Gulf raised $851mn in March 2014 and $539mn in March 2015. But the drop in oil prices in 2014-16 and a shift in exploration to shale formations onshore have since tempered interest in US offshore development.

BOEM said it was satisfied with today's results, noting the increase in bids compared with 2018.

"We have anticipated a continued trend on the upward side as oil prices have been stabilized and our system allows for predictability so people can plan ahead," BOEM Gulf of Mexico regional director Mike Celata said. Celata added that 213 of the leased tracts had previously been released by companies. "What you are seeing is companies looking at prospects they looked at in the past and deciding to go back and pick up some more acreage for their portfolio."

Industry groups also sounded upbeat about today's results. "Gulf of Mexico Lease Sale 252 allowed the federal government to check the temperature of the offshore industry in the US Gulf of Mexico in the face of the slow pace of recovering commodity prices," National Ocean Industries Association president Randall Luthi said. "The trajectory of this and the past few sales shows stability and helps establish a new normal for the US offshore industry."

But the lease also shows producers continuing to invest in existing operations in both shallow and deep water in known geologic areas, rather than committing to new deepwater projects, Luthi said.

The administration views giving producers greater access to offshore and onshore federal resources as one of the few tools for achieving its goal of spurring greater US production of oil, natural gas and coal. "In a market economy like the US, with a competitive energy sector, opportunities to increase access to production are limited, except for perhaps on federal land," White House Council of Economic Advisers said yesterday in its annual report. The federal government directly controls only a portion of US fossil fuel resources, limiting its ability to "simply turn up the tap on production," the report notes.

Crude oil production in the US Gulf federal offshore areas was 3.1pc higher year-over-year at 1.73mn b/d in 2018, according to the Energy Information Administration. Total US crude production in the same period was up by 17pc to 10.95mn b/d in 2017 and is projected to grow by another 12pc this year to 12.3mn b/d.

Onshore shale plays remain the focus for US exploration and production activity. The US rig count as of last week was 1,026, an increase of 36 — 3pc — increase on the year, according to Baker Hughes data. The rig count in the Gulf of Mexico was only 22 as of last week, or 9 rigs more than a year earlier.