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Does GoM Lease Sale 251 Signal Deepwater Upturn? Take a Look
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The latest auction for offshore drilling rights in the Gulf of Mexico (GoM) — the third under the Outer Continental Shelf program for 2017-2022 — witnessed stronger results than the last two auctions. Notably, 10 Gulf lease sales are scheduled under the program with two to be held each year.
Per the Bureau of Ocean Energy Management, the Lease Sale 251 drew 171 bids, raking in more than $178 million in high bids from oil and gas companies.
While the results are not really a barn burner, it does compare much favorably with the $121.1 million and $124.76 million, garnered in the first couple of auctions, respectively. The results definitely score a notch higher in terms of greater participation along with increased completion for offerings and bid amounts. While the Lease Sale 249 and 250 drew 159 and 99 bids, respectively, the latest auction reaped 171 bids.
The latest auction had put 801,288 acres of prospective oil/gas development spread over 144 federally owned tracts in GoM’s Western, Central and Eastern planning areas for sale.
Notable Mentions
A total of 29 companies including energy supermajors like Exxon Mobil Corporation (XOM - Free Report) , Chevron Corporation (CVX - Free Report) BP plc (BP - Free Report) , Royal Dutch Shell plc , TOTAL S.A. alongside other noted players submitted the bids.
ExxonMobil led the event by submitting 25 bids valued at $40.6 million. These included two bids worth $8.5 million and $7.5 million for De Soto Canyon 939 and De Soto Canyon 983, each.
Surprisingly, Hess Corporation (HES - Free Report) , the independent leading energy producer, took away the honor for the single highest bid of $25.9 million for Mississippi Canyon 338. The company placed a total of 16 high bids totaling to $36.2 million, securing the second spot.
Chevron took the third spot with a total of $18.7 million with just five high bids. Notably, the company offered $11.1 million for Mississippi Canyon 743.
Equinor (EQNR - Free Report) placed 16 high bids for $13.2 million. It took 19 high bids for BP’s sum to reach $12.6 million. Anadarko Petroleum Corporation offered $12.5 million, placing five high bids.
The bids totaled $6.3 million and $5.8 million for Shell plc and TOTAL, respectively.
Results Raise Hope, GoM Shows Signs of Life
After the lukewarm response received from the last auction in March, which was publicized as one of the largest lease sales in American history, there wasn’t too much of a buzz of optimism surrounding the Lease Sale 251. Many were of the view that the expensive GoM investments had been put on the back-burner as companies were more inclined toward spending on the low-cost shale plays with less stringent regulations. They have been more focused on onshore shale, which promise quicker returns with less risk.
Meanwhile most companies in the lease Sale 251 were hell-bent on the deepwater acreage around the existing discoveries or fields as against wildcat drilling owing to its low risk and short cycle characteristics. However, ExxonMobil and Equinor demonstrated a higher risk appetite by placing bids on remote blocks, mirroring further signs of resurgence. Both ExxonMobil and Equinor carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lease sales remain an indicator for the general health of the offshore energy industry. With the operating environment along with other factors contributing to improved results, GoM might be slowly getting back in the game. The administrative efforts to simplify cumbersome regulations have started to bear fruits, prompting the companies to boost investments in the region. With crude price rally along with rig rates and supply chain prices getting more competitive, the companies have begun to improve operational efficiencies. Reduction of royalty rates from a long-standing 18.75% to 12.5% has also boosted the results and activities in GoM region.
More robust results of Lease Sale 251 both in terms of dollar amounts and the number of bids reflect signs of returning confidence in the region. Though the results have shown immense promise, the recovery rate is slow and it will take quite a while to turn the tide toward GoM again.
Now it is to be seen if oil majors will remain attracted toward GoM acreage sale in the next round, which would primarily depend on the energy prices, regulatory certainty, an improving economy and favorable tax reforms.
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Image: Bigstock
Does GoM Lease Sale 251 Signal Deepwater Upturn? Take a Look
The latest auction for offshore drilling rights in the Gulf of Mexico (GoM) — the third under the Outer Continental Shelf program for 2017-2022 — witnessed stronger results than the last two auctions. Notably, 10 Gulf lease sales are scheduled under the program with two to be held each year.
Per the Bureau of Ocean Energy Management, the Lease Sale 251 drew 171 bids, raking in more than $178 million in high bids from oil and gas companies.
While the results are not really a barn burner, it does compare much favorably with the $121.1 million and $124.76 million, garnered in the first couple of auctions, respectively. The results definitely score a notch higher in terms of greater participation along with increased completion for offerings and bid amounts. While the Lease Sale 249 and 250 drew 159 and 99 bids, respectively, the latest auction reaped 171 bids.
The latest auction had put 801,288 acres of prospective oil/gas development spread over 144 federally owned tracts in GoM’s Western, Central and Eastern planning areas for sale.
Notable Mentions
A total of 29 companies including energy supermajors like Exxon Mobil Corporation (XOM - Free Report) , Chevron Corporation (CVX - Free Report) BP plc (BP - Free Report) , Royal Dutch Shell plc , TOTAL S.A. alongside other noted players submitted the bids.
ExxonMobil led the event by submitting 25 bids valued at $40.6 million. These included two bids worth $8.5 million and $7.5 million for De Soto Canyon 939 and De Soto Canyon 983, each.
Surprisingly, Hess Corporation (HES - Free Report) , the independent leading energy producer, took away the honor for the single highest bid of $25.9 million for Mississippi Canyon 338. The company placed a total of 16 high bids totaling to $36.2 million, securing the second spot.
Chevron took the third spot with a total of $18.7 million with just five high bids. Notably, the company offered $11.1 million for Mississippi Canyon 743.
Equinor (EQNR - Free Report) placed 16 high bids for $13.2 million. It took 19 high bids for BP’s sum to reach $12.6 million. Anadarko Petroleum Corporation offered $12.5 million, placing five high bids.
The bids totaled $6.3 million and $5.8 million for Shell plc and TOTAL, respectively.
Results Raise Hope, GoM Shows Signs of Life
After the lukewarm response received from the last auction in March, which was publicized as one of the largest lease sales in American history, there wasn’t too much of a buzz of optimism surrounding the Lease Sale 251. Many were of the view that the expensive GoM investments had been put on the back-burner as companies were more inclined toward spending on the low-cost shale plays with less stringent regulations. They have been more focused on onshore shale, which promise quicker returns with less risk.
Meanwhile most companies in the lease Sale 251 were hell-bent on the deepwater acreage around the existing discoveries or fields as against wildcat drilling owing to its low risk and short cycle characteristics. However, ExxonMobil and Equinor demonstrated a higher risk appetite by placing bids on remote blocks, mirroring further signs of resurgence. Both ExxonMobil and Equinor carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lease sales remain an indicator for the general health of the offshore energy industry. With the operating environment along with other factors contributing to improved results, GoM might be slowly getting back in the game. The administrative efforts to simplify cumbersome regulations have started to bear fruits, prompting the companies to boost investments in the region. With crude price rally along with rig rates and supply chain prices getting more competitive, the companies have begun to improve operational efficiencies. Reduction of royalty rates from a long-standing 18.75% to 12.5% has also boosted the results and activities in GoM region.
More robust results of Lease Sale 251 both in terms of dollar amounts and the number of bids reflect signs of returning confidence in the region. Though the results have shown immense promise, the recovery rate is slow and it will take quite a while to turn the tide toward GoM again.
Now it is to be seen if oil majors will remain attracted toward GoM acreage sale in the next round, which would primarily depend on the energy prices, regulatory certainty, an improving economy and favorable tax reforms.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
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