July 16–The Trump administration says it will again conduct the largest oil and gas lease sale in U.S. history in August, opening about 78 million acres in the Gulf of Mexico to drilling.
It remains uncertain whether the lease sale will attract any more interest than the previous two, which attracted bids on 1 percent or less of the tracts offered.
Aug. 15’s sale in New Orleans, the third under a five-year plan initially approved by the Obama administration, will seek bids in federal waters off all five Gulf States.
Administration officials say they are working to deliver on President Donald Trump’s campaign promise to make the U.S. an energy leader.
“Responsibly developing our offshore energy resources is a major pillar of this administration’s energy strategy,” Deputy Interior Secretary David Bernhardt said in announcing the sale last week. “We look forward to this important sale, as the Gulf of Mexico continues to be the crown jewel of the Outer Continental Shelf. A strong offshore energy program supports tens of thousands of well-paying jobs and provides the affordable and reliable energy Americans need to heat homes, fuel our cars, and power our economy.”
The sale comes as Houma-Thibodaux’s offshore oil-based economy struggles amid a bust that has entered its fourth year. The area has lost more than 16,000 jobs — one of every six — amid a global crude glut that caused oil prices to plummet to less than half their mid-2014 high of about $115 a barrel.
The U.S. industry has rebounded, but job growth has been limited mostly to inland shale fields, where drillers have been able to break even at about half the $60-a-barrel prices most deepwater operations required.
Oil prices have also rebounded, ranging from $70 to $75 a barrel over the past several weeks.
Gulf producers, meanwhile, have driven down the break even cost through efficiencies, including the use of tiebacks that send oil from subsea wells to existing platforms rather than building new ones. Shell, for instance, said earlier this year that it is moving forward with two Gulf projects, Kaikas and Vito, that will break even at prices of $30 or $35 a barrel.
Such efficiencies have come at a cost to many of the oilfield-service companies and workers based in Terrebonne and Lafourche parishes, economists and analysts have said. As oil companies become more efficient, they have demanded lower prices from service businesses and suppliers and often need fewer platforms, service boats and workers.
Analysts released two reports in as many weeks that indicate the Gulf is beginning to show signs of renewed interest among producers.
Worldwide, new offshore projects worth more than $110 billion have been approved for development since the beginning of 2017 versus $50 billion a year earlier, the global research firm Rystad Energy said last week.
“Deepwater projects on either side of the Atlantic Ocean — from Norway to the U.S. and from Angola to Brazil — are leading the charge toward new approvals,” Rystad senior research analyst Readul Islam said in a news release. “Higher oil prices, an improved outlook for gas demand and lower offshore development costs are driving this rebound in the industry.”
Among Gulf projects listed in the report are Shell’s Vito project, BP’s Thunderhorse expansion and Anadarko’s tieback-based work at the Hadrian North-based field.
Oil companies are also benefiting from a glut of idle rigs that cost less to deploy than before the oil bust, the June 26 report says.
The Gulf of Mexico rig count stood at 19 Friday, up one for the week but down two from a year earlier, according to Houston-based oilfield-services company Baker-Hughes. It’s down 66 percent since the bust began in August 2014.
Nonetheless, the rig count is up from 12 earlier this year, S&P Global Platts, another energy research firm, said in a report Friday that notes investment is on the upswing in the Gulf.
The report cites an influx of smaller players into shallower waters as major companies such as Chevron, Shell and BP focus on ultra-deep sections of the Gulf.
Fieldwood Energy CEO Matt McCarroll says in the report that the Gulf offers a “huge advantage” to operators, citing pipeline bottlenecks that have made it difficult to get oil from inland shale fields to U.S. refineries or export terminals.
“The smaller players … are probably betting on synergies from consolidations and also break-evens that are below current oil prices,” S&P Global Platts analyst Rene Santos says in the report.
Santos estimated the break-even cost for shale now averages $40 a barrel compared to $48 a barrel in the Gulf’s deep waters.
“The difference in break-evens between U.S. shale and the Gulf of Mexico is narrowing,” Santos said, “and the gap is expected to narrow in the next couple of years.”
— Executive Editor Keith Magill can be reached at 857-2201 or email@example.com. Follow him on Twitter @CourierEditor.
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