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Gulf sale area on block since early 1980s Bidders may have difficulty finding quality tracts in picked over Western Gulf; 3,762 tracts available in Aug. 17 lease sale Ray Tyson Petroleum News Houston Correspondent
With exploration and production companies taking in staggering amounts of cash on the unprecedented strength of commodity prices, there’s no question they could afford to load up on Western Gulf of Mexico oil and gas leases at the annual sale Aug. 17 in New Orleans.
However, after years of areawide lease sales in both the Western and Central Gulf dating back to the early 1980s, it’s really more a question these days of what’s left to take in the way of quality exploration properties.
But if last year’s Western Gulf lease sale proved anything, it demonstrated once and for all that predictions are meaningless — there are just too many variables to quantify pre-sale. Moreover, despite industry’s economic health during any given sale, there are always surprises that tend to warp or ruin a carefully constructed forecast model.
For example, the U.S. Minerals Management Service, the federal agency that conducts lease sales and collects the cash, had expected a relatively strong Western Gulf sale last year but not one that it would top the previous year’s offering, the strongest among five prior sales. Last year’s sale strongest in five years On strong oil and gas prices and attractive government incentives, last year’s sale 192 generated a whopping $171.4 million in apparent high bids, exceeding the previous year’s take by nearly $23 million. MMS had expected oil and gas prices and the incentives to play a positive role in the sale.
However, what MMS and a lot of other folks failed to predict was the return of big oil companies. They swept into the Gulf gobbling up leases, particularly on the gas-prone continental shelf, where the potential for huge undiscovered reserves evidently was just too yummy to resist. It was Big Oil’s best showing in years.
Which brings us to this year’s Western Gulf of Mexico Lease Sale 196. By all rational accounts, it should be another strong outing given that commodity prices are even higher than last year, with oil alone now hovering around an unholy $65 per barrel. Nevertheless, sale 196 will be the 22nd Western Gulf sale since the Gulf was opened to areawide leasing in 1983. So what’s left worth bidding on this time around, both on the continental shelf and in deeper waters of the Gulf? Sale offers 3,762 blocks Sale 196 encompasses 3,762 unleased blocks covering 20.3 million acres offshore Texas and Louisiana. However, companies can be expected to place bids on just several hundred of those blocks. Last year’s Western Gulf sale drew 45 companies that collectively submitted 421 bids on 351 blocks.
BP, Amerada Hess and Brazil’s Petrobras dominated last year’s sale, collecting 143 blocks between them, or nearly 41 percent of all blocks receiving bids. But the top honor went to an independent producer, Houston Exploration, which doled out a sale-high $6.8 million for a single block at High Island on the gas-rich continental shelf.
No doubt companies are taking a hard look at the so-called “newly available” blocks in the Aug. 17 sale, simply because these properties have been off the market for years. They consist of leases that expired or were relinquished by companies ahead of their expiration dates, as well as leases terminated by MMS.
There are 201 newly available blocks to be offered in Western Gulf of Mexico Lease Sale 196, compared to 241 in last year’s sale, according to statistics furnished my MMS.
Interestingly, more than 50 blocks, or roughly 26 percent of all newly available blocks in sale 196, are mostly located in the isolated “ultra-deep” waters of Alaminos Canyon and Keathley Canyon, near Mexican territorial waters. An additional 66 deepwater blocks are closer to shore in the more developed areas of East Breaks and Garden Banks. Twenty-one blocks are in the gas-prone High Island area of the continental shelf, a bidding hot spot in last year’s Western Gulf sale.
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