Contested GOM lease sale proves ‘best in 9 years’

Aug. 28, 2006
The Aug. 16 western Gulf of Mexico Lease Sale 200 was “the best in 9 years,” said US Minerals Management Service officials, despite a federal judge’s warning that pending court action by Louisiana state officials could overturn that sale.

The Aug. 16 western Gulf of Mexico Lease Sale 200 was “the best in 9 years,” said US Minerals Management Service officials, despite a federal judge’s warning that pending court action by Louisiana state officials could overturn that sale.

MMS reported robust bidding for federal leases in the sale, with high bids totaling $340.9 million from 62 companies. The total of all bids submitted was $462.8 million, up 38% from the 2005 lease sale in the western gulf. MMS officials credited high oil and gas prices and increased industry interest in deepwater production for the sale’s success.

MMS received 541 bids on 381 tracts. “[Lease] Sale 200 is the best western sale in terms of number of bids submitted in the past 9 years, and the best in 8 years for the amount of money bid,” said Chris Oynes, Gulf of Mexico regional director for MMS. “The level of activity underscores the Gulf of Mexico’s importance to domestic energy production and the oil and gas industry’s interest in expanding their deepwater operations,” he said.

Bidders concentrated on the Garden Banks and Keathley Canyon areas in the gulf. More than 50% of the tracts receiving bids were in these two areas. Several of the participating companies were first-time bidders, MMS said.

Newly available tracts also attracted interest. Of the 445 newly available tracts offered in the sale, 130 received bids, including 80 in the Garden Banks and Keathley Canyon areas.

MMS also reported continued interest in deepwater production, with 67% of all tracts receiving bids in 400 m or deeper of water. The number of shallow-water tracts receiving bids increased, indicating continued interest in that play.

Injunction denied

On Aug. 14, a federal district judge denied Louisiana’s motion for a preliminary injunction to stop MMS from conducting Lease Sale 200. However, US Judge Kurt Engelhardt warned that a scheduled Nov. 13 hearing on the merits of Louisiana’s claims could overturn the results of the sale. Louisiana officials “have a substantial likelihood of success on the merits for at least some of the claims asserted,” the judge said.

Reacting to a last-minute request by the American Petroleum Institute due to the uncertainty created by the judge, MMS officials postponed the time of the sale to 2:30 p.m. from 9 a.m., Aug. 16. The judge extended the deadline for companies to submit, revise, or withdraw bids until noon on that date.

Louisiana Gov. Kathleen Babineaux Blanco requested the injunction on grounds that MMS violated the National Environmental Protection Act, the Coastal Zone Management Act, and the Outer Continental Shelf Lands Act. The state’s complaint asked the US District Court for the Eastern District of Louisiana to prevent the opening of bids and awarding of leases in that sale.

Blanco earlier threatened to block the sale unless Louisiana receives what she described as its “fair share of revenues from offshore oil and gas drilling (OGJ, Apr. 17, 2006, p. 26).” Louisiana is pushing for 50% of the federal revenues from production off its coast. Blanco previously had recommended postponing the sale, citing persistent land loss in coastal Louisiana and devastating effects of Hurricanes Katrina and Rita.

The state could have appealed the federal court’s ruling, but apparently did not. The case is still pending. MMS requested an expedited hearing on that case. “MMS will continue to make a sustained effort to address the state’s concerns so that a fair and comprehensive treatment of the issues raised can result,” said Johnnie Burton, MMS director.

Offered in the sale were 3,865 unleased blocks covering about 20.9 million acres on the Outer Continental Shelf off Texas and in deeper waters off Louisiana. The blocks are 3-210 miles offshore in 8-3,000 m of water. MMS estimated the sale could result in the eventual production of 136-262 million bbl of crude and 810 bcf-1.4 tcf of gas.

Historically the western gulf has proven extremely attractive to bidders. At last year’s western gulf Lease Sale 196, MMS received $283.4 million in high bids (OGJ Online, Aug. 17, 2005).