Oil Companies Lukewarm about Drilling in Gulf of Mexico…It’s Not the Environment, It’s the Cost

Friday, August 21, 2015
Oil drilling rig in Gulf of Mexico (photo: Jonathan Bachman, AP/Statoil)

The U.S. government on Wednesday held an auction on oil leases in the Gulf of Mexico, and the oil industry shrugged.


With oil prices still sliding and offshore drilling an expensive endeavor, few companies bothered to bid for the leases. The auction, in fact, generated the lowest interest from oil corporations in three decades.


Only five companies bid on the 33 blocks spanning 190,000 acres of gulf waters, generating a meager $22.7 million. ExxonMobil, Shell Oil and Chevron didn’t even bother to show up at the auction, which was dominated by smaller players like BHP Billiton.


The gulf was the site of the nation’s worst oil spill in 2010 with the Deepwater Horizon accident. But environmental concerns aren’t keeping companies from sinking new wells in the region.


Analysts say many oil companies aren’t interested in expanding their operations in the Gulf of Mexico for the foreseeable future. The price of oil has plummeted from more than $100 a barrel last summer to almost $40 today, and many experts believe the market won’t rebound for another year or two.


“This sale reflects today’s market conditions,” Abigail Ross Hopper, director of the Department of Interior’s Bureau of Ocean Energy Management, told The New York Times. “The continuing drop in oil prices and low natural gas prices obviously affect industry’s short-term investment decisions, but the gulf’s long-term value to the nation remains high.”


Things are so bad economically for offshore drilling that Hercules Offshore, a leading shallow-water gulf driller, is headed for bankruptcy, with others not far behind.

-Noel Brinkerhoff


To Learn More:

Oil Companies Sit on Hands at Auction for Leases (by Clifford Krauss, New York Times)

Low Oil Prices Drive Down Bidding for Gulf of Mexico Drilling Rights (by Jennifer Dlouhy, Fuel Fix)


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