Gulf sale marked by lack of participants

Aug. 30, 1999
If no one at last week's western Gulf of Mexico offshore lease sale was surprised by the sale results, it is probably because not many expected much to happen. In fact, one would have to think back to the sales held in 1992-93 to see a sale with such a low turnout, noted the event's radio announcer. "Today just wasn't a red jacket day," he said, alluding to the red jackets typically worn to herald a robust sale.

If no one at last week's western Gulf of Mexico offshore lease sale was surprised by the sale results, it is probably because not many expected much to happen. In fact, one would have to think back to the sales held in 1992-93 to see a sale with such a low turnout, noted the event's radio announcer. "Today just wasn't a red jacket day," he said, alluding to the red jackets typically worn to herald a robust sale.

Of the 3,747 blocks on offer-which covered 19,850,624 acres-only 153 blocks, covering about 856,621 acres, received 177 bids. This compares with the 486 bids received on 402 tracts in the last western gulf sale, No. 171, said U.S. Minerals Management Service (OGJ, Aug. 31, 1998, p. 24).

Sale statistics

In Lease Sale 174, held last week in New Orleans, 41 companies or combines submitted bids. The bids exposed a total of $104,211,708. Apparent high bids totaled $94,649,044 for the 153 blocks receiving bids.

There was an almost even split between tracts receiving bids in less than 200 m of water and those in more than 800 m. About 44% of the bids in the sale were for blocks in less than 200 m of water. These blocks received 67 high bids totaling $26,296,894. Meanwhile, blocks in more than 800 m of water received 42% of the bids. These blocks received 64 high bids totaling $61,610,951.

Of the blocks receiving bids, about 6% were in water 200-400 m deep. These blocks drew 9 high bids totaling $2,266,639.

Eight percent of the blocks receiving bids were in water 400-800 m deep, and these received 13 high bids of $4,474,560.

The deepest-water block to receive a bid was Keathley Canyon 842, which lies in 3,049 m of water. The block received one bid.

The top bid in the sale was $11,283,000 for Garden Banks 877, submitted by Kerr-McGee Oil & Gas Corp. No other bids were received for the block.

High Island Area 162 received the greatest number of bids, five.

Top 10 participants

Kerr-McGee was the most active participant in the sale. Its apparent high bids, submitted alone and with partners, totaled $33,211,289 on 36 tracts.

The sale increased the firm's deepwater portfolio to more than 500 blocks, of which more than 275 are in water depths greater than 300 m.

"The deepwater Gulf of Mexico is one of Kerr-McGee's core areas for exploration and production activities, as this area offers the potential for large discoveries," said Luke R. Corbett, Kerr-McGee chairman and CEO. "The growth of deepwater technology and infrastructure allows for cost-effective developments in this province. Kerr-McGee will continue to focus on building its inventory of deepwater blocks to provide additional opportunities for exploration and development."

Following Kerr-McGee was Coastal Oil & Gas USA LP, which submitted apparent high bids totaling $4,473,580 on 18 tracts. Unocal Corp. was the next active, with high bids on 15 tracts totaling $8,802,180.

Also among the top 10 high bidders were: Spinnaker Exploration Co. LLC, Murphy Exploration & Production Co., Houston Exploration Co., Exxon Corp., Ocean Energy Inc., Samedan Oil Corp., and Amerada Hess Corp.

Feedback

The low turnout at Sale 174 did not cause much reaction on the part of industry analysts-everybody seemed to see what they expected to.

With operators currently holding many long-term leases on numerous blocks in the gulf and with the lack of rigs to develop these leased blocks, Matt Simmons, president of Simmons & Co. International, Houston, asked rhetorically, "Why should firms keep accumulating these blocks?"

The low turnout did not surprise Simmons. He noted that many firms are generally being a bit skittish, despite the recent upturn in oil and gas prices. "You need a lot of months to reliquefy the market," he said, adding that industry needs a little more time to get back on their feet.

The backlog of undrilled deepwater leases was also a factor in the sale's low turnout, Simmons reckons, with some gulf operators at least 1-2 years away from receiving their first deepwater rigs.

Representing the National Ocean Industries Association, Paul Kelly, vice-president with Rowan Cos. Inc., Houston, expected a better sale, saying he was a little disappointed with the turnout.

Kelly observed that independent companies dominated the sale: "A lot of the majors are involved in other things," such as merger and acquisition activities. The independent firms, Kelly observes, are taking advantage of the absence of the majors to acquire assets in the gulf, notably on the Outer Continental Shelf.

Independents such as Coastal Oil & Gas, Spinnaker Exploration Co., Samedan Oil, and Anadarko Petroleum Corp., says Kelly, are "quick on their feet" to swab up the valuable acreage in the gulf. It is these same independents, he notes, that have been very active in the rig market as well.

On Kerr-McGee's move for the Garden Banks block with the highest bid for this sale, Kelly said that the firm was most likely "making a strategic play."