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article imageAuction of oil-drilling tracts in Gulf was a big bust for Trump

By Karen Graham     Apr 4, 2018 in Business
The Trump administration heralded the government’s sale last month of U.S. drilling leases in the Gulf of Mexico as the "largest in US history" and Interior Secretary Ryan Zinke called it a "bellwether" for America's offshore energy future.
The "biggest in history" oil-drilling tract auction turned out to be a really "big bust" for the Trump administration and a setback to Trump's efforts to increase offshore oil production.
The auction managed to sell just one percent of the 77 million acres (31.2 million hectares) available and brought in a mere $124.8 million, a drop in the bucket, compared to the federal budget. Reuters is reporting that nearly all the tracts that were purchased were located close to existing infrastructure, with far-flung tracts being ignored.
"It kind of looks like they’re just shoring up their existing prospects right now,” said John Filostrat, a spokesman for the U.S. Bureau of Ocean Energy Management, the division of Interior that manages the auctions.
Snapping up leases next to sites that are already proven makes sense because the buyer pretty much knows he will find oil. This cuts down on infrastructure and supply costs.
“There’s still interest, but it is in areas where there was already existing knowledge of the resource base, or existing development activity or existing production,” said Michael Cohen, director of commodity research at Barclays. “Spending a lot of money to prospect is probably not going to be looked upon with favor by investors,” he said.
Shell U.K. Ltd.
The New York Times reports the Trump administration has proclaimed the auction a success because a number of oil-majors - like Royal Dutch Shell, BP, Chevron and Total — had placed over 150 bids, and the yield tally was $3 million above a regional lease sale in August of 2017.
But, truth be told, the results of the "bellwether" sale reflected the uncertainty of investors who are remaining cautious about market recovery. Not only that, but the onshore shale boom has also had an impact on oil assets. It is quite expensive to drill offshore.
As an example of the problems associated with offshore drilling, six deepwater tracts more than 200 miles off the Louisiana coast were not bid on at all. The waters in this area are close to two miles deep, and the cost of drilling and then transporting the oil to shore is very costly.
William Turner, senior research analyst at Wood Mackenzie, in email comments to UPI, wrote; "Although we are in a climate where a lot of projects begin to make sense again in the Gulf of Mexico, operators appear to still be in a 'wait and see' mentality when it comes to exploration, looking for stability in oil prices."
More about gulf oil tract auction, one percent sold, oil demand, shale oil, Investors
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