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Energy industry eyeing Gulf leases

GULF OF MEXICO — With oil prices up $30 per barrel in the past year, the energy industry is showing more interest in Wednesday’s auction of federal leases off the coasts of Louisiana, Mississippi and Alabama.

The Minerals Management Service says 67 companies submitted 642 bids on 468 tracts in the central Gulf of Mexico. Crude oil closed Tuesday at $81.70 per barrel.

Last year, oil was around $50 a barrel — and attracted 476 bids on 348 tracts. That sale garnered $703 million in winning bids.

The management service said more than half the tracts that received bids for Wednesday’s sale were in water depths greater than 1,300 feet, indicating the industry is still focused on deepwater drilling, a risk that involves hundreds of millions of dollars in investment and several years before it reaches market — if produceable quantities are found.

But after slumping prices were blamed for last year’s dull sale, analysts said Tuesday that optimism is growing that the economy is bottoming out and energy demand will begin increasing, though perhaps slowly.

“Maybe this is a slight anticipation that the economy is improving a bit,” said Phil Flynn, energy analyst and trader with PFGBest in Chicago.

In 2008, with oil well above $100, the sale set a record $3.67 billion in high bids.

Flynn said another recent sign of increased interest in the petroleum patch has been the rise in the drilling rig count. Last week, 1,407 rigs were exploring for oil and natural gas in the United States — up 25 percent from a year ago — according to Baker Hughes Inc.

Stephen Schork, energy analyst and trader with the Schork Group in Villanova, Pa., said the sale takes place at an odd time for energy prices. Oil has swung between $70 and $85 for the better part of six months, while natural gas sits near a yearlong low of about $4.40 per thousand cubic feet.

Over the short term, analysts disagree about where oil prices are headed. But Schork said that likely would make little difference to drillers — as long as the price stays at $60 or above.

“Long-term oil is moving only in one direction. We can quibble about whether oil should be $60 or $90. Finders can make money at $80 per barrel. Finders can make money at $60 per barrel,” he said.


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