Industry depression dampens Gulf of Mexico lease sale

Steven Poruban
Staff Writer

Speculation that the Central Gulf of Mexico Lease Sale No. 172 would be a small one was substantiated last week when the results of the latest U.S. Minerals Management Service sale were announced.

Of the 3,806 blocks on offer, only 207 received bids. This compares with 794 blocks of 4,180 on offer in central Gulf Sale No. 169 (OGJ, Mar. 23, 1998, p. 32).

Low oil prices and the resulting industry depression are thought responsible for the poor showing. Operators are apparently conserving their cash for exploration and development work on blocks they already own, rather than on procuring new blocks.

Sale statistics

Central Gulf Sale 172, held Mar. 17 in New Orleans, offered 3,806 blocks 3-200 miles off Louisiana, Mississippi, and Alabama in water depths of 4-3,425 m. In this sale, 67 operators submitted apparent high bids of $171,804,696 for the 207 blocks.

About 43% of the blocks receiving bids were in 800 m of water or more. About 51% of the bids were for blocks in 200 m of water or less.

MMS said operators submitted a total of 272 bids, exposing $199,638,752. This is an 85% drop from Sale No. 169's total exposure of $1,349,676,391.

The $171.8 million in high bids submitted in Sale 172 compares with $810 million that operators paid for 794 leases in last spring's central gulf sale.

Sonat Exploration GOM Inc. was the most active bidder, with high bids on 22 tracts totaling about $5.7 million. Vastar Resources Inc. followed, with high bids on 18 tracts totaling $12.2 million. Kerr-McGee Oil & Gas Corp. was next, with high bids on 17 tracts totaling $16.8 million.

The top bid was $16,577,900 for Walker Ridge 121 block. Joint bidders Marathon Oil Co. and Kerr-McGee submitted the only bid for the tract.

Three blocks received five bids each, the most received by any one block during this sale: East Cameron South Edition 337, Vermilion Area 101, and Viosca Knoll 1,003.

Operators submitted 105 bids totaling $42.3 million for tracts in up to 200 m of water. High bids on these blocks totaled $32.8 million.

Operators bid a total of about $8.2 million for 7 tracts in 200-400 m of water, with high bids totaling $6.7 million.

For water 400-800 m deep, total bids and high bids were equal, at about $1.3 million for five blocks. And in 800 m or more of water, bids on 89 tracts totaled $147.9 million, with high bids amounting to $130.8 million.

As in the 1998 central gulf sale, companies focused on the deep water. Although only 45% of the blocks receiving bids were in 400 m or more of water, those blocks received 76% of the high bid total. So operators exposed much more money per block in the deep water.

Feedback

National Ocean Industries Association Pres. Robert Stewart said that the general atmosphere was "surprisingly good," considering the current state of oil and gas prices.

Trends Stewart noticed included the strong presence of independent companies in the sale.

"This was a sale dominated by independents," he said.

Also, looking at the map of the blocks offered up for bid during this sale, Stewart noted that the blocks were widely dispersed. During this sale, he said, many companies were looking to "fill in the edges" of their already leased areas: "Most of the areas (in the gulf) are already leased up."

MMS was pleased with the sale's turnout, said official Barney Congdon. The amounts of the bids received for the tracts were higher than the MMS expected, he said.

A lot of the majors who would normally have bid were notably absent, he said: "The majors want to spend their money to develop the leases they already have."