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Good, but not great MMS predicts relatively strong Western Gulf lease sale, unlikely to top ’03 Ray Tyson Petroleum News Houston Correspondent
The upcoming Western Gulf of Mexico Lease Sale 192, given the robust commodity price environment and emerging plays in both deepwater and in shallower waters of the continental shelf, could attract spirited bidding on selected blocks.
But the U.S. Minerals Management Service, which conducts lease sales in the Gulf of Mexico, does not expect the Aug. 18 sale in New Orleans, La., to top last year’s nearly $150 million in high bids.
“Remember the last Western Gulf sale was the best in five years,” noted Chris Oynes, Gulf regional director for the MMS. “So I would be thinking this sale would be relatively strong, but it would be very difficult to reach that kind of level again.”
Nonetheless, Gulf lease sales nearly always produce surprises. MMS had a similar prediction going into last year’s Central Gulf offering, a sale which exceeded expectations in terms of both participation and high bids.
But Western Gulf Sale 192 will be the 21st sale since the Gulf was opened to areawide leasing in 1983. “The blocks are pretty well picked over,” Oynes noted. Gulf drilling level low Moreover, despite strong company cash flows driven by high oil and gas prices, companies as a whole are not investing heavily in exploration.
“The drilling level in the Gulf is still very low and it doesn’t make any sense,” Oynes said. “I don’t have a good explanation.”
But there could be contributing factors. Companies, particularly independent producers, are using much of their windfall to strengthen balance sheets or to acquire oil and gas properties with proven reserves. Additionally, many companies are still finding it difficult to access wary financial markets.
Still, there are plums to be had in the Western Gulf lease sale, particularly among the 241 so-called “newly available” blocks which have been in company hands and 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.
The newly available leases are among 3,907 blocks covering 21.2-million acres to be offered in the Aug. 18 sale. Slightly less than half of all blocks in the sale are at water depths ranging from 400 meters to over 1,600 meters. The rest are in shallower waters, mostly on the continental shelf. More than half of newly available blocks in deepwater Among the 241 newly available blocks, 135 or about 56 percent are in deepwater, with some on emerging oil plays such as the vast lower tertiary trend believed to extend from Walker Ridge in the Central Gulf to Keathley Canyon in the Western Gulf.
This geologically deep horizon, extending some 30,000 feet below the ocean surface, already has spawned important discoveries, including Cascade and St. Malo in Walker Ridge.
Although blocks in the Walker Ridge portion of the lower tertiary trend will not be offered in the upcoming Western Gulf sale, 24 newly available Keathley Canyon blocks will be included. And a chunk of them are near the closely watched Sardinia exploration well on Block 681. The well is in the process of testing the same deep horizon that produced the St. Malo and Cascade discoveries.
MMS records also show that 27 newly available deepwater blocks will be offered in nearby Alaminos Canyon, which houses another geological trend that has produced the likes of Great White and Trident. Another 45 newly available blocks are in East Breaks and 32 are in Garden Banks, the most heavily explored regions in deepwater Western Gulf.
Some of the 106 newly available blocks in shallow waters of the continental shelf also should draw heavy bidding, given the lure of deep-gas prospects and attractive royalty relief terms on production in the event of a discovery.
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