Low oil prices drive down bidding for Gulf of Mexico drilling rights

An aerial view of the Ensco 8502 drilling rig in the Gulf of Mexico. (Houston Chronicle)
An aerial view of the Ensco 8502 drilling rig in the Gulf of Mexico. (Jennifer Dlouhy/Houston Chronicle)

WASHINGTON — Oil and gas companies are set to pay $22.7 million for drilling rights in the Gulf of Mexico following a lackluster government auction Wednesday that reflected low crude prices.

With just five companies participating and only 33 leases sold, the turnout marked the smallest western Gulf of Mexico lease sale since area-wide auctions began in 1983. The previous low-water mark had been set by an auction in August 1986, when 16 companies submitted 52 bids for 41 western Gulf tracts.

The low activity wasn’t a surprise to Bureau of Ocean Energy Management officials who conducted the auction or the geologists and executives who attended the sale at the Mercedes-Benz Superdome in New Orleans.

“The entire oil and natural gas industry, particularly the offshore segment, is understandably being very cautious about spending money,” said Randall Luthi, president of the National Ocean Industries Association.

Crude prices have plummeted since last summer, when the price per barrel hit $107.26. And as they have fallen, oil companies have laid off workers, postponed projects and pared capital spending, both onshore and off.

BHP Billiton Petroleum dominated Wednesday’s sale, pledging $16.3 million to pick up 26 tracts, many concentrated in the Gulf’s Alaminos Canyon area. ‘

In July, its Australian parent company, BHP Billiton Ltd., took a $2.8 billion write down for its shale assets in the United States.

But offshore in the Gulf, it still sees big potential.

“We believe that the Gulf of Mexico has significant remaining resources to be found,” said David Rainey, BHP Billiton Petroleum’s president of exploration. “We will continue to invest through the cycle where we see material opportunities.”

Although bids were sealed until the auction began in New Orleans on Wednesday morning, none of the bidding was contested. The bids are not final; the Bureau of Ocean Energy still must vet the offers and formally decide whether to award the leases.

Anadarko Petroleum Corp. and Ecopetrol America Inc. collaborated to win three blocks in the Gulf’s Garden Banks leasing area for $1.2 million each.

Separately, Ecopetrol also pledged the highest single bid — $2.8 million — for a tract in the East Breaks leasing area.

BP was set to purchase just one lease, paying $878,552 to nab Keathley Canyon block 139, near its Gila field.

Peregrine Oil & Gas picked up two blocks in the High Island leasing area for $299,403.

The oil industry is generally less enthused by the western Gulf of Mexico than the deeper, more prospective central Gulf, where leases are expected to be sold in March.

Bureau of Ocean Energy Management director Abigail Hopper said that the sale reflected “today’s market conditions” but still “underscores a steady, continued interest in developing deep water federal offshore oil and gas resources.”

And NOIA’s Luthi noted that “each lease purchased shows a commitment to job creation, economic growth and increased energy security.”