U.S. resumes oil, gas lease auctions; bids weaker than pre-pandemic levels

FILE PHOTO: A drilling rig operates in the Permian Basin oil and natural gas production area in Lea County, New Mexico, U.S., February 10, 2019. Picture taken February 10, 2019. REUTERS/Nick Oxford/File Photo

(Reuters) - The U.S. government’s first oil and gas lease sale in five months kicked off on Wednesday, attracting weaker bidding in New Mexico than auctions that occurred before oil prices crashed during the pandemic, according to results posted on an online auction site.

The 2,800-acre sale was the Trump administration’s first since March, when lockdowns to fight the spread of the coronavirus crippled crude oil demand and prices tanked. It will be followed on Thursday with a far larger sale of more than 45,000 acres in New Mexico and Texas.

The sales are a test of industry appetite for investment as crude oil prices remain below levels at which many companies can drill profitably and bankruptcies in the sector are mounting.

The average bid per acre of $466 for nine parcels in New Mexico fell far short of recent sales in the state from before the pandemic, when average bids routinely were in the thousands of dollars per acre. The New Mexico parcels overlay parts of the sprawling Permian Basin, the world’s biggest oil field.

The average price for the three Oklahoma parcels was $119 per acre, higher than recent sales in the state due to a $201 per acre bid for 58.6 acres in Dewey County.

A spokeswoman for the U.S. Bureau of Land Management (BLM) in New Mexico, Cathy Garber, said the bid prices were “competitive.”

“Without comparing this sale with past sales involving parcels in the same general area, it is difficult to characterize the average prices,” Garber said in an email.

Drilling on federal lands is a crucial part of U.S. President Donald Trump’s “energy dominance” agenda to maximize domestic production of fossil fuels. His opponent in the November election, Joe Biden, has pledged to ban new oil and gas leasing on public lands.

Reporting by Nichola Groom; Editing by Andrea Ricci and David Gregorio