The first regionwide Gulf of Mexico lease sale under the US Bureau of Ocean Energy Management’s new Outer Continental Shelf program was predictably subdued, with supermajors Royal Dutch Shell PLC and Chevron Corp. leading in bidding activity and sum of high bids.
Lease Sale 249 garnered 99 bids on 90 blocks from 27 companies, BOEM announced in New Orleans on Aug. 16. The auction’s overall sum of high bids was $121 million. The results were down by about half from March’s central gulf Lease Sale 247 (OGJ Online, Mar. 22, 2017).
Shell Offshore Inc., which led the last two central gulf sales in sums of high bids, placed the most high bids in the combined sale. The firm’s 19 high bids totaled $25 million, including $4.5 million on Keathley Canyon Block 214, $3.5 million on Alaminos Canyon Block 381, and $2.8 million on Alaminos Canyon Block 816, each of which is in more than 1,600 m of water.
Chevron USA Inc. outspent Shell by posting just under $28 million from 15 high bids, including $5.7 million on Alaminos Canyon Block 814, $3.2 million on Alaminos Canyon Block 770, and $2.2 million on Garden Banks Block 978.
ExxonMobil Corp. counted $20.4 million from just 7 high bids. The $10.8 million it bid on Mississippi Canyon Block 779 and $5.7 million it bid on Mississippi Canyon Block 823 were the second and third highest winning bids, respectively.
Total E&P USA Inc. placed the single highest bid of $12.1 million on Garden Banks Block 1003. The French supermajor counted 6 high bids totaling $16.8 million.
US independent Anadarko Petroleum Corp. tallied 10 high bids totaling $10.6 million, including $3.8 million on Mississippi Canyon Block 40.
Other active participants included Statoil Gulf of Mexico LLC with 4 bids totaling $5 million, LLOG Bluewater Holdings LLC with 6 bids totaling $2.7 million, Apache Deepwater LLC with 1 bid of $1.7 million, BP Exploration & Production Inc. with 3 bids totaling $1.7 million, and LLOG Exploration Offshore LLC with 3 bids totaling $1.6 million.
Blocks in more than 1,600 m of water received 42 bids overall and $69.3 million in high bids. Those in 800-1,600 m of water took 34 bids and $48.9 million in high bids.
William Turner, senior research analyst at Wood Mackenzie Ltd., commented that “deepwater blocks won the day,” as the “deepwater industry is emphasizing short-cycle, low-risk prospects above high-impact, wildcat drilling." Operators continued to focus on areas near existing infrastructure as a majority of bids were close to existing hubs or appraised developments, he said.
He noted that Total’s Garden Banks 1003 is adjacent to North Platte, Cobalt International Energy Inc’s appraised discovery that’s being marketed.
"However, bids from Chevron, Shell, and Total near pre-[final investment decision] discoveries, Guadalupe and North Platte, were a vote of confidence in higher-risk, standalone developments with potential for higher rewards." Turner added.
Lease Sale 249 offered more than 14,000 blocks covering 76 million acres.
New era begins
Randall Luthi, National Ocean Industries Association (NOIA) president, issued a statement prior to the event anticipating the somewhat muted results.
“Despite the new 12.5% shallow-water royalty rate offered as a much-needed financial incentive, extended low commodity prices may dampen bidding on the shelf,” he said on Aug. 15. “Given current economic conditions and regulatory environment, offshore operators may choose to focus their capital on acquiring leases for longer range deepwater projects.”
BOEM this summer lowered the shallow-water royalty rate for Lease Sale 249 from the original 18.75% (OGJ Online, July 7, 2017). The new rate, which is the same as the one for federal onshore oil and gas royalties, applies in water less than 200 m. Blocks within that depth received just 10 bids and $2 million in high bids during the Aug. 16 sale.
The overall results from Lease Sale 249 compare with the 189 bids on 163 blocks from 28 companies reported from Lease Sale 247, the final gulf sale under the Obama administration’s OCS leasing program for 2012-17. Its sum of high bids was about $275 million.
However, BOEM ended up later rejecting 10 high bids totaling just under $11 million after determining “the value of those bids was insufficient to provide the public with fair market value for the tracts,” which were reoffered in Lease Sale 249.
Last year’s western gulf Lease Sale 248 garnered 24 bids on 24 blocks from 3 companies, with high bids totaling just $18 million (OGJ Online, Aug. 24, 2016).
Lease Sale 249, which took place in lieu of the yearly August western gulf sale, is the first sale in the new OCS leasing program for 2017-2022.
Under the new program, 10 regionwide lease sales are scheduled for the gulf. Two gulf lease sales will be held each year and include all available blocks in the combined western, central, and eastern planning areas.
Contact Matt Zborowski at [email protected].
