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Giants awaken BP, Petrobras, Amerada Hess lead bidding in $171.4M Western Gulf sale 192 Ray Tyson Petroleum News Houston Correspondent
Like a sleeping giant who awakens from a long nap looking for something to devour, big oil companies swept into the Gulf of Mexico on Aug. 18 gobbling up federal oil and gas leases, particularly on the gas-prone continental shelf, where the potential for huge undiscovered reserves is proving to be quite appetizing.
Western Gulf of Mexico Lease Sale 192 generated a surprising $171.4 million in apparent high bids, exceeding last year’s sale by nearly $23 million and making it the government’s most lucrative Western Gulf offering in six years. It’s also been years since the majors showed up in such force for a Gulf lease sale.
The U.S. Minerals Management Service had predicted a relatively strong sale, given the strong commodity price environment attractiveness of some prospects, but had not expected it to surpass last year’s $148.7 million in high bids.
“The results of the sale were really very, very good,” concluded Chris Oynes, MMS regional director for the Gulf of Mexico.
Oynes attributed the sale’s success largely to high oil and gas prices and government royalty relief on gas production below 15,000 feet on the continental shelf. He said the number of bids on shelf blocks qualifying for royalty relief was up 22 percent from last year’s Western Gulf sale.
“Companies have had more time to assess the incentives MMS has put forward on deep gas and have come up with some new exploration ideas,” he said. “We’re continuing to see a push to look at deep gas and to take advantage of MMS incentives.” Top 10 capture nearly 50% of blocks Top 10 winners Amerada Hess, BP Exploration & Production, Petrobras America, Shell Offshore and ConocoPhillips accounted for nearly 36 percent of the total high bids and captured 50 percent of the 351 exploration blocks that received bids. Hess, BP and Petrobras dominated the sale, collecting 143 blocks between them, or nearly 41 percent of all blocks receiving bids.
Other top 10 players were Devon Energy with $11.5 million in high bids on 26 blocks, Kerr-McGee with $14.1 million in bids on 24 blocks, Shell with $5.5 million in bids on 17 blocks, Woodside Energy with $3.1 million in bids on 17 blocks, ConocoPhillips with $3.2 million in bids on 16 blocks, Pioneer Natural Resources with $6.2 million in bids on 15 blocks, and Unocal with $3.3 million in bids on 13 blocks.
Ironically, none of the big guys ranked among the top companies in terms of highest bids placed on individual blocks. The top honor went to an independent producer, The Houston Exploration Co., which doled out a sale-high $6.8 million for a single block at High Island on the continental shelf. BP takes 48 blocks BP was one giant who came to Sale 192 with a particularly big appetite and an even fatter wallet, shelling out more than $28 million in high bids to capture 48 blocks. That was more than twice the $13.7 million second-place spender Hess coughed up for the 58 blocks it won. In third place was Petrobras, which paid out just $10.7 million in high bids for 37 blocks.
However, with 72 percent or 301 of the 351 blocks bid on receiving single bids, Sale 192 was not much of a competitive event. Just 36 blocks received two bids each, nine blocks received three bids each, four blocks received four bids each, and only one block garnered five bids. Just 45 companies participated in the sale but collectively submitted an impressive 421 bids.
Although there were more than a handful of leases that attracted bids of over $1 million, the sale was noticeably void of any large bids. Last year’s Western Gulf sale, for example, drew a $22.6 million winning bid on a single block, three times the highest bid in Sale 192 and approaching what BP paid in total for its 48 blocks.
Rather, it was the cumulative impact of blanket bidding in which a few companies, individually or in partnership, attempt to amass tracts in particular areas that ran up the totals. That generally spells a concerted effort to secure large acreage positions in developing hydrocarbon trends, in this case the lure of potentially large, untapped natural gas reserves in the deep and particularly the “ultra-deep” geological horizons below 25,000 feet on the continental shelf. Companies looking for large positions Because of the high-cost, high-risk nature of drilling deep-gas wells on the continental shelf, companies generally want a lot of running room, Oynes said.
“If they are fortunate enough to have a large discovery … they would like to have a pretty large position to recover that risk position,” he said.
Sale 192 stars BP and Petrobras, along with ExxonMobil, already have farmed in to Newfield Exploration’s ultra-deep Treasure Island and Treasure Bay leases, and are preparing to drill a 38,000-foot exploration well at the Blackbeard prospect. BP also is said to be negotiating with drilling contractor Rowan to drill a separate 35,000-foot well. Moreover, various operators could drill as many as 18 wells over the coming months to depths greater than 18,000 feet.
Nearly 160 or 45 percent of blocks receiving bids in Sale 192 were in or near the relatively shallow waters of the continental shelf. Eight-seven or nearly 54 percent of all shelf bids were placed on blocks in High Island region, a hot area for deep drilling.
BP alone picked up 23 blocks in High Island, representing nearly half of all blocks won by the company, and another 22 blocks in the Brazos and Galveston districts on the shelf. Nearly all were noncompetitive single bids. It was a similar story for Petrobras, which captured 28 blocks in the Corpus Christi district on single bids.
Shell also factored into the competition on the shelf, picking up one tract and losing two to BP. As far an exploration, both companies are predominantly deepwater players.
Interestingly, ultra-deep Treasure Island partners Newfield and Petrobras and Treasure Bay partners Newfield and BHP Billiton teamed up to win three High Island blocks on single bids.
To a lesser extent than the majors, other independent producers were victorious on the continental shelf, including Pioneer, Devon Energy, Woodside, EOG Resources, El Paso, Murphy Exploration and Spinnaker Exploration. Deeper waters attract fewer bids Available exploration blocks in deeper waters of the Gulf of Mexico attracted less attention this time around, although the region provided some noted action.
For one, Hess blanket bid and won 22 blocks bids in East Breaks, 11 blocks in the Port Isabel district, and another 12 blocks in ultra-deepwater Alaminos Canyon, home to some of the largest discoveries in the Western Gulf.
Big independent Kerr-McGee was particularly active in the Garden Banks area, a leasing hot spot for industry in recent years. Either on its own or in conjunction with other companies, including Hess, Unocal, Nexen Petroleum and long-time deepwater partner Devon, Kerr-McGee secured acreage positions in some 24 blocks in the region.
ConocoPhillips and Woodside also were major players in Garden Banks, teaming up to win a dozen blocks.
The majors and large independents also put on a good show in remote, ultra-deepwater Keathley Canyon, where nearly 80 bids were placed on available blocks, some of them possibly connected to an emerging oil play known as the lower tertiary trend.
ChevronTexaco alone picked up 10 blocks in the region, followed by top winners that included Anadarko Petroleum with nine blocks and Shell with seven blocks. Devon, either by itself or in partnership with Eni Petroleum or Unocal, latched on to about a dozen blocks. Other companies that won blocks in Keathley Canyon included Petrobras, EnCana, Spinnaker, ConocoPhillips and Pioneer.
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