Gulf of Mexico oil lease auction to test response to Trump-era regulations

Reuters | Jessica Resnick-Ault | August 10, 2018

NEW YORK (Reuters) – A federal auction of exploration leases in the Gulf of Mexico next week will test energy companies’ appetite for acreage after the Trump administration left royalty rates for deepwater parcels unchanged, bucking an industry call to lower them.

The U.S. Gulf of Mexico has faced waning interest in recent years as competition stepped up from other basins globally, as well as from onshore shale basins and Mexico’s waters in the Gulf.

Oil companies had lobbied for lower royalty payments for deepwater acreage because of the projects’ high cost and long lead time before production can begin. In February, the Interior Department’s Royalty Policy Committee had recommended lowering the rates.

Some companies may have bid on fewer parcels in March’s auction, waiting to see if the Interior Department would cut royalties, said William Turner, a senior research analyst at Wood Mackenzie. In that auction, only 1 percent of the 77 million acres (31.2 million hectares) on offer received bids.

Next week’s sale is the first since U.S. Interior Secretary Ryan Zinke said in April that he would leave deepwater royalty rates unchanged at 18.75 percent, rather than drop them to the 12.5 percent rate for shallow-water parcels.

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