Sale 181 has mix of successes and underachievers

Sam Fletcher
OGJ Online

HOUSTON, Dec. 6 -- Anadarko Petroleum Corp., Shell Offshore Inc., and Kerr-McGee Oil & Gas Corp. flexed their wallets and deepwater expertise as the most active participants at this week's federal Lease Sale 181 for the eastern Gulf of Mexico.

But some industry observers are still scratching their heads over several established deepwater stars who either were underachievers or didn't even bid in the first lease sale in those waters since 1988. All of the blocks drawing bids in that sale are in 1,600 m of water or more, which qualify for a 10-year lease term at 12.5% royalty.

"ExxonMobil Corp. and BP PLC didn't even participate, despite their sizeable expertise in deepwater operations," said Joel L. Riddle with Arthur Andersen LLP, who was demonstrating the company's new real time online lease sale webcast facility during its annual energy symposium Wednesday in Houston.

Shell, ExxonMobil, and BP have used their highly evolved seismic bright-spot identification tools to develop the shelf and primary deepwater basins out to 5,000 ft of water in other parts of the gulf.

BP and Chevron Corp. have estimated that as much as 40 billion boe may ultimately be found in the deepwater gulf, equivalent to cumulative discovered reserves on the Gulf of Mexico shelf. Of that 40 billion boe, about 10 billion boe have been found to date.

Houston-based Anadarko was the biggest spender at Wednesday's sale, submitting 33 bids totaling $167.4 million, including 26 high bids of more than $136 million for nearly 150,000 acres in water depths of 7,000-9,500 ft.

The company submitted the biggest single bid in that sale, more than $26 million, or $4,516.50/acre, for Lloyd Ridge Block 91. That beat out Kerr-McGee's bid of a little more than $1 million for that same lease.

"It's as if we've been peering over the fence for the last 13 years, with great opportunities just out of reach. Finally, the fences are coming down," said Robert J. Allison Jr., Anadarko's chairman and CEO. "These tracts have not been available for exploration since ... well before major advancements in deepwater exploration and production technology."

Allison said, "We have gathered and interpreted an extensive amount of information about these (East Gulf) blocks, and we're convinced they hold substantial oil and gas reserves with relatively low geologic risk. Since a lot of the preliminary work has already been completed, the prospects can be drilled ... as soon as late 2002, which makes this addition a good complement to Anadarko's portfolio."

Before this sale, Anadarko already had 351 leases in the Gulf of Mexico, including 109 in deep water. The company also has a partnership with BP to explore 95 deepwater blocks held by BP in the Garden Banks and Keathley Canyon areas of the Central Gulf.

Shell Offshore also was active at this week's sale, with 48 bids totaling $127.9 million. Among those were 28 high bids -- 20 of them uncontested -- exceeding $109.6 million.

Shell submitted the second-highest single bid in that sale, more than $22.1 million for Lloyd Ridge Block 399. That block was one of six that drew five bids each, including an offering from Anadarko of more than $21 million for Block 399.

Shell also had the third highest bid of the day, an uncontested offering of $21.1 million for Lloyd Ridge Block 446. That block is located in 2,908 m of water, the deepest to attract a bid in that sale.

Kerr-McGee, the Oklahoma City company that drilled the first offshore well out of sight of land on Ship Shoal Block 32 in the gulf in November 1947, was still going strong at this week's sale. It submitted 22 bids, some with partners, that exposed more than $43.4 million. It was apparent high bidder in 16 of those attempts, totaling more than $34.7 million.

That will "give us a presence in new plays that complement our already outstanding deepwater gulf portfolio," said Luke R. Corbett, chairman and CEO of Kerr-McGee.

Assuming the company is successful in obtaining those 16 leases, Corbett said, "We will operate 60% of these high-bid blocks with an average working interest of about 63%, allowing us to continue to enhance our successful exploration and development program in the gulf."

Kerr-McGee claims the title as the largest independent leaseholder in the gulf, with the largest number of deepwater gulf blocks among its peers. With the 16 new blocks, the company will have interests in 372 deepwater blocks in the gulf and will operate more than 70% of those leases with an average working interest of 50%, officials said. It will increase its gulf leaseholdings by more than 92,000 gross acres to 3 million gross acres.

Spinnaker Exploration Co. LLC submitted 26 bids totaling $9 million Wednesday, but was apparent top bidder for only 8 for $3.4 million. Dominion Exploration & Production Inc. also made 22 bids for a total $17 million, coming out on top in only 5 for $6.3 million.

Amerada Hess Corp. submitted 20 bids for almost $13.8 million, but was high in only 8 for $6.8 million. Chevron USA Inc. made 12 bids totaling nearly $10 million, with only one apparent success of $237,643. Petrobras America Inc. made 11 attempts totaling $6 million, with only 4 high bids of $1.8 million.

Phillips Petroleum Co. didn't register a single top bid out of 10 offerings totaling $12 million. Conoco Inc. also was unsuccessful with its two bids totaling $450,400.

Some of those companies are among the most experienced deepwater operators. An earlier study by energy analysts Douglas-Westwood Ltd. and offshore data specialists Infield Systems reported that Petroleo Brasileiro SA (Petrobras) and Royal Dutch/Shell Group have bought more than 1 billion boe of deepwater reserves on stream during the last 5 years. Within the next 5 years, it said, Petrobras has 3.3 billion boe of prospects expected to come on stream; BP, 2.5 billion boe; ExxonMobil, 2.4 billion boe; Royal Dutch/Shell, 2.3 billion boe; and ChevronTexaco Corp., 1.5 billion boe (OGJ Online, June 11, 2001).

On the other hand, Marathon Oil Co. registered 14 top offers totaling $28.3 million at Lease Sale 181, out of 16 total bids amounting cumulatively to $33.4 million.

EOG Resources Inc. and Devon Energy Production Co. LP were among the most focused participants in that sale, with each registering three top bids out of four offerings. EOG's top bids totaled $8.3 million out of a cumulative offering of $8.5 million. Devon's top bids amounted to $2.77 million out of total bids of $2.8 million.

Final results of the sale will be announced after the US Minerals Management Service reviews the bids. The agency can reject bids that it deems too low.

Contact Sam Fletcher at samf@ogjonline.com

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