Offshore auction tests industry’s appetite amid slumping prices

WASHINGTON — Nearly three dozen companies are vying for drilling rights in the Gulf of Mexico on Wednesday in a government auction of offshore oil and gas leases that could be tempered by falling crude prices.

All told, 195 sealed bids for 169 separate central Gulf tracts are set to be opened when the Bureau of Ocean Energy Management kicks off the auction Wednesday in a meeting room inside New Orleans’ Mercedes-Benz Superdome.

And while the monetary amounts won’t be disclosed until the sale is underway, the number of companies that are participating — just 35, down from 50 a year ago and 56 in a similar March 2013 auction — suggests lower oil prices may be dampening enthusiasm (and available cash) for the offshore acreage.

The decline in participating companies also may reflect mergers among firms active on the shallow continental shelf and the concentration of well-capitalized companies focusing on the deep-water frontier.

Bureau Director Abigail Hopper, who will preside over some of the auction Wednesday, said the agency expects “a great deal of industry interest.”

But she acknowledged that low oil prices — which tumbled 1 percent on Tuesday to settle at $43.46 barrel — are a backdrop for the bidding.

“We’re interested to see how current oil prices affect the sale,” Hopper said. “There could be a small depression in the (activity).”

In opening the auction Wednesday, Interior Secretary Sally Jewell addressed tumbling oil prices. “Your future economics depend on a commodity price you don’t control,” she told the crowd of oil industry employees. “I think we may feel a little bit of that in today’s lease sale.”

Technically, the bureau allowed bids on tracts spanning 41.2 million acres in the central Gulf of Mexico, off the coasts of Louisiana, Mississippi and Alabama.

The available acreage included 597 newly available blocks, mostly in deep water. While that is an increase over the March 2014 central Gulf sale, it is not likely to spur big bidding because many of those newly available blocks were voluntarily relinquished by lease holders early — a sign that the companies were not sold on their commercial prospects after further studying (and, in some cases, drilling) them.

Historically, about 20 to 25 percent of newly available blocks in central Gulf lease sales have received bids, according to ocean energy bureau data.

Most of the submitted bids target territory in deep water, with 100 of the 169 tracts receiving bids in 800 or more meters of water.

The most attractive Gulf region was the Green Canyon area, which drew 52 bids. Other leasing areas drawing significant interest Wednesday were Mississippi Canyon, Keathley Canyon and Walker Ridge.

Oil companies zealously guard their bid plans, often with only a handful of employees involved in the final stages of the process. Because bids are sealed — with both their content and their existence under cover — the offers can vary widely.

For instance, in Wednesday’s sale, a series of bids came in for a cluster of blocks in the Green Canyon lease area, with one — block 761 — drawing a $997,122 offer from Statoil Gulf of Mexico that lost out to a combined bid from Chevron U.S.A. and Venari Offshore totaling $43.1 million.

During the last central Gulf sale, in March 2014, 50 companies filed bids worth $1.1 billion — including $850.8 million in winning offers.