UPDATE 1-Record U.S. oil offshore lease sale to test Trump energy push

By Richard Valdmanis

March 21 (Reuters) - The largest lease sale in Americanhistory in the offshore Gulf of Mexico yielded $124.76 milliondollars in winning bids from drillers on Wednesday, a modestresponse to the Trump administration's effort to pump upinvestment in the region.

The Interior Department had offered up a record 77 millionacres (31.2 million hectares) for development with discountedroyalty rates on the shallower tracts, as part of a broadereffort by President Donald Trump's administration to ramp upU.S. fossil fuels output.

But companies bid on just 1 percent of that acreage, and wonthose tracts with bids averaging $153 an acre - 35 percent belowlevels at a similar auction last year, and a fraction of thosein the region in 2013 when oil prices were much higher,according to a Reuters review of the data.

The Interior Department's Bureau of Ocean Energy Management,which administered the auction, characterized the results asrobust: "I think we’re seeing continued consistent investment inthe Gulf of Mexico," BOEM spokesman Mike Celata said in aconference call with reporters, adding he forecast increasingoil and gas production from the region for years.

He said 33 companies, including majors Royal Dutch Shell Plc, BP Plc, Chevron Corp, and Total SA, had placed 159 bids on 148 blocks.

But critics of the administration called the unusually largelease sale ill-timed. U.S. crude oil and natural gas output isalready smashing records thanks to improved drilling technologythat has opened up cheaper onshore reservoirs, and Brazil andMexico are also competing for drilling investment in their owndeepwater acreage.

"Offering a nearly unrestricted supply in a low demandmarket with a cut rate royalty and almost no competition is badpolicy and an inexcusable waste of taxpayer resources," theCenter for American Progress, a left-leaning policy think tank,said in a statement.

It called the sale an "embarrassing flop".

Interior Secretary Ryan Zinke had said ahead of the salethat the record-sized offering would be a "bellwether" ofindustry demand in the region, and billed the effort as a way tohelp the United States become more "energy dominant."

PUMPING UP INTEREST

The U.S. government offers Gulf of Mexico leases annually,but usually in smaller regional batches. An auction in March2017, for example, offered up 48 million acres in the CentralGulf of Mexico planning region.

Wood Mackenzie energy analyst Mfon Usoro said she hadexpected demand for the acreage to get a boost from higher oilprices and lower corporate taxes. But she noted interest couldbe hurt by competition from Latin America and concerns over theimpact that U.S. tariffs on steel imports could have on costs.

A spokeswoman for the American Petroleum Institute, whichrepresents U.S. oil and gas companies, did not comment onindustry demand in the Gulf, but said the administration'scommitment to providing the industry broad access to the regionwas important.

"Without this key access to new U.S. energy resources, wecould see millions in investments, significant governmentrevenues and thousands of jobs shift to other parts of theworld," spokeswoman Cornelia Horner said.

In an effort to pump up interest, the Interior Departmenthad cut the royalty rate companies must pay in shallow offshorewaters by a third to 12.5 percent, and is considering cuttingthe rate for deeper waters too.

The administration is eyeing further vast lease salesoffshore in the future, having proposed opening up parts of theArctic, Atlantic and Pacific - an idea that has faced pushbackfrom several governors in U.S. coastal states.(Writing by Richard ValdmanisEditing by Marguerita Choy and Paul Simao)