Blockbuster GOM lease sale
Central Gulf of Mexico lease sale draws breathtaking $2.9B in high bids
For Petroleum News
Companies opened their wallets in a spectacular display of spending at Central Gulf of Mexico Lease Sale 205, plunking down $2.9 billion in apparent high bids, by far the best showing for a U.S. Gulf lease sale in more than two decades. The number of winning and losing bids combined totaled $5.2 billion, demonstrating the highly competitive nature of the Oct. 3 sale in New Orleans.
“This was, I believe, the most competitive sale that we’ve had since the start of areawide leasing (in 1983). It’s phenomenal that there was that much interest,” Lars Herbst, Gulf director for the U.S. Minerals Management Service, told Petroleum News in a post-sale interview.
The performance can be attributed partly to a roughly 25 percent larger Central Gulf sale area, the result of a general reconfiguration of the region’s three planning areas, “ultra-deepwater” blocks in the eastern portion of the newly created sale area that had not been offered since 1988, and a ton of so-called “newly available” blocks, or expired and relinquished deepwater blocks that had been off the market for more than a decade.
There also was a huge 20-month lag between the previous Central Gulf sale, due to an environmental lawsuit that resulted in the cancellation of the traditional March Central Gulf offering.
However, these factors alone do not fully explain the enormous amount of cash offered up in Sale 205, which drew 1,428 bids on 723 blocks, compared to 707 bids on 405 blocks in the 2006 Central Gulf sale (198), considered a highly successful sale in its own right. Moreover, Sale 205 produced nearly five times the $588 million in high bids generated in Sale 198.
Technology believed factorBecause many of the highest bids were placed on expired and relinquished deepwater blocks unavailable for leasing since the 1996-97 time frame, MMS’ Herbst attributed technological advances, particularly in the field of 3-D seismic, for the high competition in the Walker Ridge and Keathley Canyon regions of the Gulf.
“It has allowed them (companies) to better see these prospects below the thick salt in those areas,” he said, noting that explorers also were drawn to the two regions because of major discoveries in the vast Lower Tertiary trend, undoubtedly the hottest oil play in the deepwater Gulf of Mexico.
Additionally, he noted, results from a production test at the Jack discovery in Walker Ridge “tied up” the Lower Tertiary trend from the Cascade-Chinook discovery in Walker Ridge to the Great White discovery on the western edge of the trend in Alaminos Canyon.
Herbst also noted that there were 14 new players in Central Gulf Sale 205, some of whom participated in deepwater bidding. “I think that was the most surprising aspect of the sale,” he added. “It’s just increased the competition from the old days when it was pretty much Shell and BP.”
Shell tops bids at half a $BNonetheless, the $554.6 million in winning bids placed by Shell Offshore, the biggest spender in Sale 205, alone nearly matched the collective high bids in Central Gulf Sale 198. Shell also placed a sale-high $90.5 million for a single tract in Walker Ridge.
Shell’s more than a half-billion dollars in high bids bought the company a total of 69 blocks, the second highest number of blocks won next to BP’s 83 blocks on $107 million in high bids.
Other top 10 winners based on the sum of high bids submitted were: Chevron USA, $283 million (44 blocks); Marathon Oil, $221.7 million (27); Cobalt International Energy, $211.3 million (53); Murphy E&P, $161 million (26); Australia’s BHP Billiton, $140.2 million (14); ConocoPhillips, $122.5 million (six); Canada’s Nexen Petroleum Offshore USA, $113.6 million (30); and Brazil’s Petrobras America, $108.1 million (26).
Of the 27 blocks won by Marathon, 13 were 100 percent bid by the company, and the remaining 14 blocks were bid in conjunction with partners.
“These new leases will complement our current portfolio of prospects and further strengthen (our) exploration commitment in the deepwater Gulf of Mexico,” said Phil Behrman, Marathon’s senior vice president worldwide exploration.
Two tracts draw 13 bids eachSale 205 attracted an inordinate number of multiple bids on single tracts, another indicator of the sale’s competitive nature. Two tracts, including Shell’s sale-high $90.5 million, received 13 bids each.
Another hot spot in the sale was on the eastern side of the Central Gulf planning area, in the so-called “old sale 181 area,” where acreage had not been available for lease since 1988. Bidding there was no doubt driven, at least in part, by numerous natural gas discoveries in nearby areas that gave rise to the Independence Hub production facility, the deepest subsea production in the world at around 8,000 feet.
Italy’s Eni Petroleum, among a raft of foreign oil and gas companies that participated in Sale 205, scattered its bids across the entire Central Gulf, in water depths ranging from 20 feet in the relatively shallow waters of the Gulf’s continental shelf to 9,800 feet in the Gulf’s ultradeep waters.
Eni bid alone on 21 high bids and with partners on an additional five high bids. Eni had high bids with three different bidding groups with working interests of 50 percent. Eni also had joint high bids with Anadarko in Atwater Valley, with Nexen in Lloyd Ridge, and with Hydro on the shelf.
The company said its increase in bid activity was the result of additional exploration focus areas since it acquired Dominion’s offshore assets and leveraging its technical expertise in Houston and in New Orleans.
Eni already owns lease interest in 439 Gulf of Mexico blocks, encompassing approximately 2.2 million net acres, 72 percent of which are in deepwater. Currently Eni’s daily equity production in the U.S. Gulf is in excess of 100,000 barrels of oil equivalent, 60 percent operated.
The 30 blocks Nexen won in Sale 205, if approved by MMS, would bring the E&P independent’s total deepwater portfolio in the U.S. Gulf to around 260 blocks.
“This further solidifies our position in the deepwater of the Gulf of Mexico,” said Charlie Fischer, Nexen’s president and chief executive officer. “We were able to capture a number of exciting sub-salt blocks in the lease sale, which adds to our significant portfolio of exploration opportunities.”