Only 5 bidders, 33 bids, $22.7M in oil lease sale off Texas; low oil prices a big reason

The smallest oil lease sale ever in the western Gulf of Mexico and one of the smallest in the entire Gulf brought only five bidders Wednesday, with low oil prices limiting interest in the prospects. Most seats in a Superdome meeting room were empty as a federal energy official read the 33 bids for tracts off the Texas coast.

Each tract drew a single bid, for a total of $22.7 million. Not all bids wind up as leases: over the years, nearly 3 percent of all bids have been rejected or withdrawn.

Officials had expected interest to be down from last year because oil prices are so low, said Mike Celata, acting regional director for the Bureau of Ocean Energy Management.

U.S. crude sold for $41.63 a barrel Wednesday, less than half the price a year ago, when 14 companies offered a bit of competition: 93 bids on 81 tracts, for a total of $109.9 million in bids and $109.1 million on the 80 leases signed.

Randall Luthi, president of the National Offshore Industries Association, said another factor is uncertainty about recently proposed regulations that are likely to increase costs. Those include stronger rules proposed for equipment designed to prevent well blowouts and limits proposed Tuesday for methane emissions from oil and gas wells, he said.

Oil is a cyclical business, and recent years have seen "thousands and thousands of layoffs," Luthi said.

Twenty-six of Wednesday's bids were made by BHP Billiton Petroleum (Deepwater) Inc., which bid a total of nearly $16.3 million.

"I think that shows long-term potential for oil and gas companies to do business in the Gulf of Mexico," Celata said.

"There are definitely a lot of resources left" in the Gulf, he said

Luthi said many of the tracts are in deep water, requiring at least a 10-year lease.

A March 18 sale in the far more popular central Gulf of Mexico brought the lowest number of bids since 1986. Officials said low oil prices were the reason. Since then, the price of U.S. crude has dropped more than $1.40 a barrel.

The water bottom off Louisiana, Mississippi and Alabama is about double the size of the western Gulf, Celata said. Luthi said the tracts off Texas tend to have more natural gas, which brings in less money, than those in the central Gulf.

The sale was the smallest in the western Gulf since 1983, when the Minerals Management Service, which was reorganized and got a name change after the Deepwater Horizon oil spill, began regional sales.

It's not the smallest Gulf-wide: one off the Florida coast in 2014 and one in the central Gulf in 2001 got no bidders, and one offering about one-third as much acreage in the Western Gulf drew three bids in March 2014, with $21.3 million in high bids. Two in the eastern Gulf, where drilling is forbidden in most areas, drew more bidders but less money, $6.6 million in 2005 and $8.4 million in 2003.