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July 13, 2018

U.S. sets Gulf of Mexico oil, gas lease sale despite lackluster demand

U.S. sets Gulf of Mexico oil, gas lease sale despite lackluster demand
Unused oil rigs sit in the Gulf of Mexico near Port Fourchon, Louisiana

By Timothy Gardner

WASHINGTON (Reuters) - The U.S. Department of the Interior said on Thursday it would hold a record-sized auction for oil and gas leases in the Gulf of Mexico next month, in an attempt to spark interest in offshore drilling months after a similar sale received a weak response from energy companies.

The sale, to be held on Aug. 15, includes all available unleased areas in federal waters of the Gulf of Mexico in about 78 million acres (31.5 million hectares) off Texas, Louisiana, Mississippi, Alabama and Florida. It is the third sale in the agency's 2017-2022 program, which aims to hold 10 sales in all.

The sale is part of what the Interior Department calls President Donald Trump's America-First Offshore Energy Strategy. Vincent DeVito, an adviser to Interior Secretary Ryan Zinke, said the sale "is just one piece of the administration's comprehensive effort to secure our nation's energy future."

The last Gulf of Mexico lease sale, held in March, brought in only $124.8 million, as just 1 percent of the then-record 77 million acres (31.2 million hectares) offered found bidders. In addition, nearly all the purchases showed big drillers stuck closest to existing operations.

In April, Zinke, who had earlier proposed opening up nearly all the country's coasts to drilling, said the sale in March held "modest to little" interest from drillers and added there was little likelihood for strong demand elsewhere in the country. His plan to open up the Pacific and Atlantic coasts was criticized by environmentalists, politicians and tourism and fishing interests.

The U.S. government estimates the Outer Continental Shelf in the Gulf of Mexico contains about 48 billion barrels of undiscovered technically recoverable oil and 141 trillion cubic feet of undiscovered technically recoverable gas.

Most of the recent U.S. oil boom has occurred onshore, where it is cheaper to drill than in deepwater. In addition, many drillers are exploring in other places, such as Mexico, where energy reforms have brought in billions of dollars in investments.

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