Aug. 16–Industry officials cited increased bidding in today’s federal oil lease sale as evidence the Gulf of Mexico is showing signs of life after a four-year bust.
Companies submitted $178.1 million in high bids on 144 tracts Wednesday, a dollar amount up 28 percent since the last lease sale in March, the Interior Department said. High bids from the lease sale in New Orleans averaged $1.2 million, up from $939,000.
“The Gulf of Mexico is a long established oil and gas province and many of the blocks offered at today’s sale have been offered many times before,” said Kate MacGregor, the Interior Department’s principal deputy assistant secretary. “Today’s results demonstrate a steady interest as serious innovation and engineering continues to unlock new energy resources deep below the seabed.”
Nonetheless, bidding remains near historic lows, an indication that a return to the boom days for Gulf drilling remain a long-term proposition.
The Trump administration billed the sale as the largest in U.S. history in New Orleans, opening about 78 million acres in the Gulf to drilling. The 29 companies with high bids are seeking to drill on a combined 801,288 acres, or about 1 percent of the total offered, up slightly from March.
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 it’s often cheaper to drill, though deepwater efficiencies continue to shrink the gap.
“This lease sale is a barometer and a step in the recovering health of the offshore oil and gas industry,” Tim Charters, a spokesman for the National Ocean Industries Association, said in a prepared statement. “While the recovery is neither uniform nor universal, efficiency improvements in the last few years are starting to bear fruit, and some offshore sectors are showing profits, although the margins are slim.”
The good news, Charters said, is that higher oil prices — above $60 a barrel most of this year — are providing producers a sense of certainty that has been lacking.
“In addition,” he said, “the administration’s efforts to streamline and reduce some burdensome regulations that do not enhance safety will encourage companies to continue to invest in the U.S. Gulf of Mexico — an integral slice of America’s economic and energy security pie.”
The organization, which lobbies on behalf of oilfield marine and service companies, joined Louisiana industry groups in pushing the Trump administration to cut the amount it charges oil companies to drill in the deepwater Gulf.
U.S. Interior Secretary Ryan Zinke rejected a recommendation to lower royalty rates by a third in April, disappointing industry groups that pushed for the change.
The agency’s Royalty Policy Committee voted in February to recommend lowering royalty rates for deepwater Gulf drilling from a longstanding 18.75 percent to 12.5 percent. The Interior Department took the same action last year for shallow Gulf waters. Royalties are based on a percentage of gross revenue companies earn selling oil drilled on federal leases.
But since then, an improving economy, federal tax reforms, higher energy prices and greater regulatory certainty have led to “positive market conditions,” negating the need for royalty relief, at least for now, Zinke said in April.
“Offshore investments are globally competitive, and reducing royalty rates on deepwater leases could go a long way to boosting future Gulf activity,” Chris John, president of the Louisiana Mid-Continent Oil and Gas Association, said today. “Ultimately, reduced royalty rates will lead to an even greater increase in activity in the Gulf of Mexico, an increase in production and an increase in much needed oil-and-gas-industry jobs and will fully support the administration’s American energy dominance.”
Industry groups said companies are increasingly looking to offshore oilfields in other countries that charge less to drill.
“Offshore oil and gas development is a globally competitive market, and offshore operators can choose to invest their dollars in other parts of the world,” said Lori LeBlanc, executive director of the Thibodaux-based Gulf Economic Survival Team. “If the administration truly wants to achieve ‘energy dominance’ then it would be prudent to adopt a deepwater royalty-relief program that provides a competitive edge for the Gulf of Mexico and long-term sustainability.
“Production may be up, but jobs are down, vessels are tied up, and our nation needs to adopt policies that will boost offshore activity now more than ever.”
— Executive Editor Keith Magill can be reached at 857-2201 or firstname.lastname@example.org. Follow him on Twitter @CourierEditor.
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