Gulf oil-lease auction draws bids on only 24 of 4,400 lots

A Jefferson Parish sheriff’s deputy (right), tells a protester carrying a box with a copy of a petition against federal oil lease sales that he cannot enter the offices of the Bureau of Ocean Energy Management in Harahan, La., on Tuesday.
A Jefferson Parish sheriff’s deputy (right), tells a protester carrying a box with a copy of a petition against federal oil lease sales that he cannot enter the offices of the Bureau of Ocean Energy Management in Harahan, La., on Tuesday.

NEW ORLEANS -- The federal government's annual sale of oil and gas leases in the Gulf of Mexico attracted hardly any interest Wednesday, reflecting a dismal outlook for offshore drilling.

Only three oil companies bid on just 24 of the nearly 4,400 tracts offered for drilling and exploration in the Gulf of Mexico off the Texas coast. No tract drew more than one bid.

"Everything about this sale screams wariness," said Stewart Glickman, an analyst for S&P Global Market Intelligence.

Between them, BP Exploration and Production Inc., BHP Billiton Petroleum Inc., and Exxon Mobil Corp. offered a total of $18 million, the Bureau of Ocean Energy Management said.

It represents the least revenue offered by the smallest number of companies making the fewest bids yet on leases in the central or western Gulf of Mexico, said Michael Celata, the agency's regional director. Last year, five companies made 33 bids totaling $22.7 million.

Celata blames low oil prices, which have been under about $50 per 42-gallon barrel since mid-2015. Prices had ranged from $75 to nearly $120 during the six years before that.

If oil futures returned to $75 or above, "I think some players might say, 'You know what? We might dip our toes back in the Gulf.' At this point, that looks like a long way off," said Glickman.

Declining prices for renewable energy don't yet threaten the Gulf's offshore oil industry, Glickman said. The real competition is from onshore drilling, which is much cheaper, faster and less risky.

Operating a midwater rig can cost eight times as much as a top-end onshore drilling rig, which costs about $20,000 a day, Glickman said.

It's also notable that this year's only bidders were two "supermajors" and BHP Billiton, a huge mining company with significant oil and gas operations.

The industry includes between 5,000 and 8,000 exploration and production companies, but "even garden-variety water is not the provenance of smaller players anymore," Glickman said.

In the end, Exxon bid a total of $1.7 million, BP $6.3 million and BHP Billiton $10 million. Nearly all the tracts they bid on are adjacent to areas already being leased, which also suggests caution, Glickman said.

That's a far cry from November 2012, when oil was selling at $91.20 a barrel and 13 companies offered $133.8 million in high bids on 116 tracts in the same area.

At $90 a barrel, "virtually any well was going to be making money. Companies ratcheted up spending to grow as much as possible," Glickman said.

Now, "firms are being conservative. Not all cash is going to the drill bit. Some is going to pay back debt," he said. "Not everyone has the luxury of Exxon's position where they can think 20 or 30 years ahead."

Wednesday's sale was the first to be livestreamed on the Internet, after protesters disrupted last year's event in a ballroom at the Superdome.

Agency director Abigail Ross Hopper opened envelopes and revealed each bid to an online audience of 1,100 people, compared with several hundred in past sales.

While it had no effect on the bidding, the presentation was marred by a video glitch. While Hopper was preparing to read the third bid, she announced a "pause," and for several minutes, the screen displayed messages such as "memory full" and "all scenes -- now deleting."

Celata said the bureau might add a backup system "and a few more tests before we go live in the future."

Four protesters opposed to federal oil lease sales were arrested Tuesday at the suburban New Orleans building where the leasing agency has offices.

The four were among about a dozen protesters who walked to the Bureau of Ocean Energy Management office building with a copy of an online petition they said had garnered 184,000 electronic signatures in six days. They want an end to all new drilling in the Gulf of Mexico.

"We are not just selling the Gulf. We are selling our children's future," said Renate Heurich, a retired teacher in suburban Jefferson Parish. "We are refusing to change our lifestyle and our children will have to deal with immense problems once the climate gets more and more extreme."

Business on 08/25/2016

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