Demand for oil-drilling rights in the U.S. Gulf of Mexico plummeted to a 20-year low as slumping energy prices prompts explorers to trim spending and conserve cash.
The Interior Department’s Bureau of Ocean Energy Management received 148 bids for rights to 128 tracts in a swath of the central Gulf stretching from Louisiana to Alabama in waters as deep as 11,115 feet (3,388 meters). The sum of the highest bids was $156.4 million, the fourth-lowest for that sector of the Gulf since such sales began in 1983, Michael Celata, the bureau’s Gulf of Mexico regional director, said during a conference call on Wednesday.
The auction results spotlighted the oil industry’s predicament amid the worst market downturn in a generation: Dwindling cash flows are forcing explorers to skimp on the very drilling projects required to ensure crude production can be sustained or increased years from now. Oil giants including ConocoPhillips have canceled billions of dollars in offshore investments to focus on lower-cost, lower-risk onshore prospects such as shale.
“Although investment is down right now, the Gulf remains one of the world’s most-active drilling” basins, Janice Schneider, the Interior Department’s assistant secretary for land and minerals management, said during the call. “We expect exploration will bounce back” when prices recover.
The top bid in Wednesday’s auction was a $13.7 million joint offer from Chevron Corp. and Venari Resources LLC, the offshore crude producer led by legendary Gulf explorer Brian Reinsborough, whose financial backers include Warburg Pincus and Kelso & Co.
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The offer, which would be enough cash to drill two shale wells in the onshore Permian Basin in Texas, was for rights to a 9-square-mile block in a subsea valley called Mississippi Canyon, the bureau said.
Chevron, the world’s third-largest oil producer by market value, is amassing new drilling prospects in the deepwater Gulf even as it scales back exploration in other regions. In January, the San Ramon, California-based company walked away from the Moccasin field it discovered in 2011 and has surrendered control of the 2009 find known as Buckskin to its partners in the venture.
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