Western gulf lease sale attracts $110 million in high bids

Gulf of Mexico western planning area Lease Sale 238 drew 93 bids from 14 companies over 81 blocks covering 433,823 acres, totaling $109,951,644 in apparent high bids, reported the US Bureau of Ocean Energy Management (BOEM), which held the event on Aug. 20 in New Orleans.

Although the total bids were more than the 61 received in last year’s western gulf lease sale, the total value in apparent high bids was just modestly higher than last year’s $102,351,712 received from 12 companies (OGJ Online, Aug. 28, 2013).

Notably, 24 bids were received for the 167 blocks offered on or partially within 3 statute miles of the maritime and continental shelf boundary with Mexico. Leases for the blocks are subject to the terms of the US-Mexico Transboundary Hydrocarbon Reservoirs Agreement.

Proposed in April and scheduled in July, Lease Sale 238 made available 21.6 million acres for oil and gas exploration and development offshore Texas, encompassing 4,026 blocks that lie 9-250 miles from the coast in 16-10,975 ft of water (OGJ Online, Apr. 15, 2014; July 17, 2014).

BOEM estimates the sale could result in the production of 116-200 million bbl of oil and 538-938 bcf of natural gas.

Participating companies

Most bids came from BP Exploration & Production Inc., which was the apparent high bidder on 27 of 32 bids it submitted, totaling $22,837,729.

The company said in a statement that its “participation in today’s lease sale further underscores its commitment to the gulf,” where it hopes “to continue building on that commitment and on the recent momentum that has returned to BP’s operations in the deepwater Gulf of Mexico.”

BP in March’s central gulf Lease Sale 231 submitted a total of 24 apparent high bids totaling $41.63 million after reaching an agreement effectively ending the bar against it on new federal contracts imposed in the wake of the 2010 Deepwater Horizon-Macondo deepwater well incident and crude oil spill (OGJ Online, Mar. 14, 2014).

Following BP was Australia’s BHP Billiton Petroleum Inc. with 14 bids comprising $21,887,500. ConocoPhillips Co. placed 10 bids comprising $23,423,000, including the highest single bid of $16,788,800 on Alaminos Canyon Block 431.

Chevron Corp. submitted just 5 bids but tallied the highest sum of high bids, totaling $25,796,605. Bids it submitted on Alaminos Canyon Blocks 215, 258, and 216 represented three of the five single highest bids at $8,539,321, $7,439,321, and $5,739,321, respectively.

Royal Dutch Shell PLC unit Shell Offshore Inc. was the apparent high bidder at $1.75 million on Alaminos Canyon Block 902, the only block on which the company bid, beating out Stone Energy Corp.’s $1.06 million bid.

Shell says the acquisition strengthens its existing position in the Perdido fold belt, where the company has drilled 11 exploration and appraisal wells, with production from 14 wells in the Tobago, Silvertip, and Great White ultradeepwater fields.

“The Gulf of Mexico is a major production area in the US, accounting for almost 50% of our oil and gas production in the country,” said Mark Shuster, Shell executive vice-president, exploration. “We look forward to building on our long, successful history there.”

The company in July made its third major oil discovery in the Norphlet play of the eastern gulf (OGJ Online, July 15, 2014).

BOEM notes that each bid will go through a strict evaluation process within the agency to ensure the public receives fair market value before a lease is awarded.

Industry reaction

Randall Luthi, president of the National Ocean Industries Association (NOIA), provided perspective on the day’s events.

“Today’s sale is a typical western gulf sale, and while it included some healthy bidding, it was not expected to fetch the eye popping bids that typically accompany a central gulf sale.”

In comparison, March’s central gulf lease sale—far more active than either of the last two western sales—received 380 bids from 50 companies resulting in a total of $850 million in apparent high bids (OGJ Online, Mar. 19, 2014).

Lease Sale 238 is the sixth offshore sale under the Administration’s Outer Continental Shelf Oil and Gas Leasing Program for 2012-17. The first five sales offered more than 60 million acres and garnered $2.3 billion.

“This sale allowed many of the smaller exploration and production companies to successfully compete for leases in both deep and shallow water, keeping a diversity vital to the overall energy and jobs portfolio of the United States,” Luthi said.

Other companies that placed multiple bids included Venari Offshore LLC, LLOG Bluewater Holdings, and Focus Exploration LLC with 5 each, and Castex Offshore Inc. with 3.

“This sale also reaffirms the industry's great interest in deep water prospects in the transboundary area,” Luthi said.

Erik Milito, upstream group director of the American Petroleum Institute, seconded a point also made by Luthi that the sale highlights the benefit of allowing development in the 87% of the OCS the federal government has placed off-limits.

“Today’s lease sale is a reminder that opening new areas to offshore energy exploration and production could create nearly half a million American jobs and raise tens of billions of dollars to help fund the government,” said Milito.

“The western and central sections of the Gulf of Mexico remain important areas for domestic oil and natural gas production, but they have been continually explored for decades while the vast majority of US waters are kept off-limits.

“Tremendous potential exists for job creation and energy development in the Atlantic, Pacific, Arctic, and eastern Gulf of Mexico. We should seize the opportunity to further America’s energy renaissance by exploring and producing in new areas offshore,” Milito urged.

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