Oil and gas lease sale results reflect industry concerns

Oil and gas lease sale results reflect industry concerns

The nation's Secretary of the Interior, Sally Jewell, was in town with other energy officials for a huge oil and gas lease sale held inside the Mercedes-Benz Superdome on Wednesday, but the results of the sale showed the impact that low oil prices and continued low natural gas prices are having on offshore investments.

The Gulf of Mexico off Louisiana's coastline is vast and deep. But when access to the waters of the Central Gulf went on the auction block, interest was less than robust.

The Interior Department's Bureau of Ocean Energy Management, or BOEM, says 42 offshore energy companies submitted 195 bids on 169 tracts covering 923,700 acres. The problem is, the government was offering 41.2 million acres and not even a million acres ended up attracting bids.

"As companies look at their revenues and their plans for the future, they make perhaps different decisions than they would have a little while ago when the market was at a different place," said BOEM Director Abigail Ross Hopper.

A BOEM spokesman said it was the second-lowest number of bids since 1983.

Still, a lot of money was laid on the table. BOEM said the lease sale attracted $538 million in high bids for tracts on the U.S. Outer Continental Shelf offshore of Louisiana, Mississippi and Alabama. The sum of all bids received was almost $600 million.

By comparison, high bids for a 2008 lease sale were close to $3.7 billion.

"I do not think this is a disappointing sale, I think it is what we expected given that oil prices obviously are lower than they've been in the last six years, that has an impact," Hopper said.

"They got leases on a couple of hundred, which is pretty small. What that's telling you is that the oil industry has been scared off a little bit by low-priced oil, and they also have got less capital budget to spend," said Eric Smith of Tulane University Energy Institute.

But Smith believes it is more than just the oil prices that have some energy companies hesitant right now. He says many remain uncertain about the regulations they could face going forward.

"There's a certain amount of reticence by some of the oil companies simply because they don't know what the rules are supposed to be," said Smith.

Still, energy officials insist the Gulf is safer because of the regulations in the wake of the disastrous BP accident.

"I think that the Department of Interior and the total government in general has made important strides in the last five years to ensure that oil exploration and development is as safe as it can be," Hopper said.

"I would agree with her, I would simply say that there is no free lunch. It's not so much that the rules are different, it's that are they going to be different again by the time my project comes on line," Smith said.

And federal energy officials are optimistic that deep water activities will grow in the next few years.

It is an expensive proposition, however, the advances we've made in technology over the last few decades have really made areas accessible that weren't before," Hopper said.

"While the decline in oil price has had an influence on today's Gulf of Mexico OCS lease sale, we believe that the Gulf is still a prominent energy resource for America and will continue to be for many years to come. The fact that the majority of today's bids are for deepwater tracts is evidence that industry is still willing to invest in the deepwater Gulf of Mexico for the long term," said Chris John, president of the Louisiana Mid-Continent Oil & Gas Association, in a statement.

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