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The latest auction for offshore drilling rights in the Gulf of Mexico (GoM) – which was the first under the Outer Continental Shelf program for 2017-2022 – witnessed a tepid response than the earlier ones. However, the highlight of the lease sale 249 was the domination of the deepwater bidding.

According to the Bureau of Ocean Energy Management, governing offshore drilling, the lease sale raked in more than $121.1 million in high bids from oil and gas companies. The auction had put 508,096.16 acres of prospective oil/gas development spread over 90 federally owned tracts in GoM’s Western, Central and Eastern planning areas for sale. Notably, since 1983 this is the first time in which all the available tracts of GoM was made available for auction.  

In all, the bureau received 99 bids submitted by 27 companies, garnering a total of $137 million for 90 blocks. This reflects a decline of over 57% in the total value of bids during the previous lease sale in March. Further, the companies had also bid around 45% fewer tracts in the recent auction as compared to the prior one.

Energy majors like Chevron Corp. (CVX - Free Report) , Royal Dutch Shell plc (RDS.A - Free Report) and Exxon Mobil Corp. (XOM - Free Report) – all Zacks Rank #3 (Hold) companies – were some of the biggest spenders in the recent lease sale. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. The bids totaled $27.9 million, $25.1 million and $20.3 million for Chevron, Shell and Exxon Mobil respectively. Other noted participants were TOTAL S.A. (TOT - Free Report) , Statoil ASA (STO - Free Report) with bids valuing $16.8 million and $5 million respectively.

Notably, the auction demonstrated the companies’ preference for deepwater areas which attracted $118 million in high bids, representing 98% the total high bids value. In this regard, TOTAL submitted the highest bid at $12.1 million for deepwater block Garden Banks 1003. This was followed by ExxonMobil which placed the bid of $10.8 million for deepwater block Mississippi Canyon 779.

The energy players were more inclined toward the deepwater acreage around the existing discoveries or fields as against wildcat drilling owing to its low risk and short cycle characteristics amid the weak crude environment. Despite the reduction of royalty rates by BOEM for the recent auction, energy companies have refrained from the shallow water bidding as they find it less profitable owing to the tough market conditions and pricing environment. However, the officials of the Bureau of Energy Management expect that the shallow water bidding will gain momentum in the subsequent auctions.  

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