Independents walked away from Central Gulf of Mexico Lease Sale 194 with the lion’s share of exploration blocks and accounted for the 10 highest bids in the entire sale, including a sale-high $21.15 million for a block on the gas-prone continental shelf that had been off the open market for more than a half-century.
Sale 194 generated $353.9 million in total high bids, shy of last year’s $368.8 million performance, the best showing for a Central Gulf sale during the prior six years.
Seventy-two companies participated in the March 16 lease sale in New Orleans, submitting a total of 651 bids on 428 blocks. That compares to 83 companies placing 829 bids on 557 blocks in last year’s Central Gulf lease sale.
Eastern Gulf of Mexico Lease Sale 197, held immediately following the Central Gulf offering, brought in an additional $6.97 million in high bids with a dozen companies participating, more than the U.S. Minerals Management Service had anticipated for the picked-over region. The Eastern Gulf planning area also pales in size and hydrocarbon potential to the Central Gulf.
Central Gulf lease sale very competitive
But in the Central Gulf, independents showed up to do battle in one of most competitive lease sales in memory, particularly in the shallow waters of the U.S. Gulf’s continental shelf where roughly 40 percent of the blocks received multiple bids. In water depths below 200 meters, 172 blocks received single bids, 39 received two bids, 16 received three bids, 10 received four bids, four received five bids, one received six bids and one got eight bids.
West Cameron block 132, which had been under lease since 1947 and therefore unavailable until this month’s Central Gulf sale, drew eight bids and the heaviest action on the continental shelf, including the $21.15 million winning bid placed by partners Dominion Exploration and Production and partner Stone Energy. Other bids on the block ranged from a low of $85,557 to the second place bid of $16.04 million by Spinnaker Exploration and bidding partner Houston Exploration.
Block 132 began as a Louisiana state lease and later was converted to a federal lease, MMS spokeswoman Caryl Fagot said. She said the block was originally issued to Superior Oil and later assigned to Mobil Oil and then El Paso, the last owner before production was discontinued on the block in February 2004. The lease first produced in 1965 and encompasses only 2,500 acres, less than half the size of a typical 5,760-acre federal lease in the Gulf of Mexico. And it is just south of a lease owned by El Paso.
Incentives, prices, major drivers
A pot load of government incentives to drill for natural gas in the relatively shallow waters of the continental shelf, coupled with exceptionally strong oil and gas prices, appeared to be major drivers in the sale.
“They are still charging back to the shelf (and), related to that, independents came with their pocketbooks, big time,” Chris Oynes, MMS regional director for the U.S. Gulf, told Petroleum News following the sale.
The staying power and strength of commodity prices also likely encouraged bidders to chase marginal oil and gas prospects that would be uneconomical with lower prices, Oynes said.
“This is an industry response we would have anticipated and expected — that they’re going after, in some cases, lower rated prospects because the price scenarios will support it,” he added.
In the deepwater Gulf, blocks in the Mississippi Canyon area drew five of the 10 highest bids in the sale, including the sale’s second highest bid ($20.15 million) for a tract which sits on the southwestern fringe of the BP-operated Thunder Horse complex, the largest oil discovery ever in the Gulf.
The winning bid for Mississippi Canyon block 819 was submitted by the same partnership that struck oil at the Thunder Hawk prospect on the northeastern flank of Thunder Horse: Murphy Exploration, Dominion, Spinnaker and Pioneer Natural Resources.
Murphy and Spinnaker also teamed up to take Mississippi Canyon block 713 for $10.37 million, the fourth highest bid in the sale.
Three small independents — Helis Oil and Gas, Houston Energy and Red Willow Offshore — formed a partnership to cast the third highest bid in the sale, capturing Mississippi Canyon block 519 for $12.77 million.
“Probably from a whole sort of sub-region standpoint, Mississippi Canyon was probably the number one story. It got a lot of attention,” Oynes said, adding that some 45 of the approximately 280 so-called newly available blocks offered in the sale were located in Mississippi Canyon.
Newly available blocks consist of tracts that had been under lease and expired, or were voluntarily relinquished by their owners. “It’s very likely that quite a few of those got bids,” Oynes said.
Other top 10 participants based on single highest bids were Dominion with an $8.85 million bid for Ship Shoal block 138, LLOG Exploration Offshore with a $6.77 million bid for Mississippi Canyon block 503, Dominion with a $5.83 million bid for West Cameron block 0-199, Tana Exploration with a $5.25 million bid for Ewing Bank block 922, LLOG with a bid of $4.77 million for Eugene Island block 152, and Devon Energy with a bid of $4.11 million for Mississippi Canyon block 588.
Dominion tops individual winning bidders
Based on total high bids cast by an individual company, Dominion was the clear leader, coughing up $52.30 million to capture 25 tracts. Other top 10 spenders were LLOG with $34.85 million in total high bids for 22 tracts, Murphy with $28.05 million for 23 tracts; Spinnaker with $17.01 million for 19 tracts, Energy Partners with $15.05 million for 22 tracts, Focus Exploration with $10.17 million for 25 tracts, Remington Oil and Gas with $9.73 million for 21 tracts, ChevronTexaco with $8.12 million for 22 tracts, ExxonMobil with $6.88 million for 18 tracts, and Magnum Hunter Production with $3.91 million for 15 tracts.
Focus Exploration, an independent which tied with Dominion for the most tracts won in Sale 194, was a recently formed company and a newcomer to U.S. Gulf lease sales, according to MMS. Focus qualified for the sale just under the March deadline, according to MMS.
Bidding in the usually hot Green Canyon area of the Central Gulf was relatively light compared to past sales. “I think the last two Central sales before this one were so strong in Green Canyon that it’s probably been beat to death,” Oynes said.
Several major oil companies submitted bids on the continental shelf, but for the most part they seemed to focus on uncontested blocks in Walker Ridge and other ultra-deep waters of the Central Gulf, including Amery Terrace and the so-called “Donut Hole” located adjacent to Mexico’s territorial waters. The players included Shell, ChevronTexaco, BP Exploration, ConocoPhillips, ExxonMobil and Eni. Independents Kerr-McGee and Pioneer also picked up a few ultra-deep blocks.
“They (leases) carry 10-year terms and are pretty rank wildcat,” Oynes said.
In the Eastern Gulf sale area, 12 blocks were sold on 12 uncontested bids in the Lloyd Ridge and DeSoto Canyon regions by Anadarko Petroleum, Petrobras, Devon, Newfield Exploration, Spinnaker and Helis Oil.
