MMS issues notice of central Gulf of Mexico lease sale 185

By OGJ editors

WASHINGTON, DC, Nov. 18 -- The US Minerals Management Service plans a Mar. 19, 2003, offshore oil and gas lease sale for the central Gulf of Mexico that will include royalty-relief measures designed to spur domestic production.

MMS said Friday companies will be eligible for an incentive to drill for deep gas deposits in the shallow-water shelf area of the gulf in water less than 200 m. Royalty relief will be given for the first 20 bcf of production from any well drilled into a new deep gas reservoir 15,000 ft below sea level. But to qualify, production must occur within 5 years from lease issuance.

MMS estimates that undiscovered deep gas resources on the near-shore shelf could be in the range of 5 to 20 tcf. Officials estimate that incentives of royalty relief could add another 250-600 bcf of production in 2003-07.

"Up to 10% of this incremental effect could be realized from proposed Sale 185 alone," MMS said.

Additionally, MMS is prepared to offer deepwater royalty relief in water depths of 400-799 m (for 5 million boe per lease), 800-1,599 m (9 million boe per lease) and 1,600 m or greater (12 million boe per lease).

Under certain conditions pursuant to proposed rulemaking, companies also may apply for additional "discretionary" royalty relief, MMS said.

Proposed Sale 185 encompasses 4,411 available blocks in the central gulf off Louisiana, Mississippi, and Alabama. This area covers 23.1 million acres. Blocks to be offered in this sale are 3-210 miles offshore in water depths ranging from 4 m to more than 3,425 m. Undiscovered, economically recoverable hydrocarbons in this area are estimated at 270-650 million bbl of oil and 1.59-3.3 tcf of natural gas.

Other concerns
Lease Sale 185 includes several sale requirements. MMS noted that Mississippi Canyon Block 474 is to be explored and developed from offlease sites. "This requirement would reduce potential conflicts between future lease activities on this block and the planned structures and activities associated with the (Royal Dutch/Shell Group's) Nakika (deepwater development) project," MMS said. That block serves as a host location for development of 10 subsea wells on nearby blocks.

In addition, leaseholders must pledge to mitigate potential adverse effects on protected species such as marine mammals, sea turtles, and birds.

Before they submit bids, companies also must tell MMS whether they possess or control depth-migrated geophysical data pertaining to any block in they are interested.

Earlier sale
In other matters, MMS said Thursday it awarded 316 leases—most in shallow water—after evaluating bids received in the second phase of a two-phase bid process for the Aug. 21 Western Gulf Lease Sale 184. Apparent high bids at the time of that sale totaled $151.3 million (OGJ Online, Aug. 21, 2002). Final high bids in the second phase totaled nearly $148.6 million, including a 1/5 bonus of $76,570 forfeited on Lease OCS-G 24507.

Of 323 tracts receiving bids in that sale, MMS rejected seven high bids exceeding $2.4 million as "insufficient for fair market value." Among the original 10 high bidders, Amerada Hess Corp. was awarded three tracts less than the 45 for which it was apparent high bidder; Shell Offshore Inc. was awarded one tract less than the 35 on which it was highest bidder; and Gryphon Exploration Co. was awarded one less than the 13 for which it was apparent high bidder.

Shallow-water blocks in depths to 655 ft and with 5-year lease terms received almost 44% of the accepted bids. MMS now has a royalty relief provision for 20 bcf of deep gas production greater than 15,000 ft in shallow shelf waters. Another 22% of the bids were in ultradeepwater of 5,249 ft or deeper, and 18% were in depths of 2,624-5,248 ft, with lease terms of 10 years.

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