Sam Fletcher
Senior Writer
HOUSTON, Mar. 20 -- Apparent high bids totaling $363.2 million were offered for 506 offshore tracts at Lease Sale 182 for the central Gulf of Mexico, officials of the US Minerals Management Service reported Wednesday.
It was the first lease sale in the central gulf under the shallow-water, deep natural gas initiative that provides for suspension of royalty payments for the first 20 bcf of gas produced from a well drilled 15,000 feet or deeper below sea level.
Designed to bolster US gas production during 2003-07, it was among the most recent revisions of the deep gas royalty incentive that the MMS instituted in March 2001. Officials have estimated it could stimulate extra production of 250-600 bcf during the targeted period (OGJ Online, Feb. 19, 2002).
Incentive response
It apparently provoked an enthusiastic response at the sale. There were 288 blocks in less than 200 m that attracted total bids of $163.6 million with apparent high bids of $125.7 million. Those included 25 blocks in the 8(g) zone, the 3-mile-wide band that borders state jurisdictional waters where the state and federal governments share royalties.
MMS officials received 697 bids in all, totaling $442.4 million from 77 companies in today's sale. That was down from 780 bids totaling $663.4 million submitted by 90 companies for 547 tracts during the last central gulf lease sale nearly a year ago. High bids in that previous sale totaled $505.5 million.
MMS Director Johnnie Burton described the sale as "a resounding success" with "more activity than we had been expecting."
Burton said, "We are particularly pleased with the strong amount of bidding in the shallow water portion of the sale. Independent companies and majors both responded with bids in shallow water and were obviously encouraged by MMS's newest incentive of royalty relief for deep gas."
There was a more even mix of major integrated companies and independents participating in Wednesday's sale, however, analysts reported. Independents seemed to dominate lease sales last year for both the central and western gulf.
The 10 companies submitting the highest total number of apparent high bids Wednesday included Dominion Exploration & Production Inc., 37 bids totaling $37 million; Spinnaker Exploration Co. LLC, 42 bids, $28.8 million; BP Exploration & Production Inc., 39 bids, $27.2 million; Chevron USA Inc., 29 bids, $26.6 million; Kerr-McGee Oil & Gas Corp., 36 bids, $15.35 million; BHP Petroleum (Deepwater) Inc., 27 bids, $15.31 million; Nexen Petroleum Offshore USA Inc., 30 bids, $13.7 million; Conoco Inc., 24 bids, $8.3 million; Magnum Hunter Production Inc., 41 bids, $5.7 million; and Remington Oil & Gas Corp., 25 bids, $3.7 million.
The single largest bid for one tract was $17.5 million submitted by Phillips Petroleum Co. for Green Canyon Block 199 located in 800-1,599 m of water. Chevron partnered with Enterprise Oil Gulf of Mexico Inc. and PanCanadian Gulf of Mexico Inc. in the second highest bid of the day, $14.9 million for Green Canyon Block 726 in more than 1,600 m.
Dominion and Spinnaker partnered together in 4 of the 10 highest single bids of the sale. Those included $8.3 million for Atwater Valley Block 70 in more than 1,600 m of water, $7.4 million for West Cameron Block 72 in less than 200 m, and 6.4 million for Mississippi Canyon Block 125 in 800-1,599 m. The two joined with Murphy Exploration & Production Co. in bidding $7.2 million for Mississippi Canyon Block 343 in more than 1,600 m of water.
Other big bids included $14.3 million by BP for Mississippi Canyon Block 726 in 800-1,599 m of water. Chevron combined with Enterprise and PanCanadian in offering $12.4 million for Green Canyon Block 770 in more than 1,600 m. Shell Offshore Inc. put up $6.5 million for Mississippi Canyon Blcok 805 in 800-1,599 m.
Kerr-McGee, the biggest spending independent in both of last year's lease sales for the central and western gulf, was still among the top 10 Wednesday after it combined with Ocean Energy Inc. to offer $6.2 million for Mississippi Canyon 842 in 800-1,599 m of water.
Water depth breakout
Participants in Wednesday's sale had a keen interest in deepwater operations. There were 71 blocks in more than 1,600 m of water that drew bids totaling $108.1 million, with apparent high bids amounting to $94.3 million. Another 81 blocks, in 800-1,599 m, drew total bids of $125.3 million, with apparent high bids of $100.9 million.
The deepest block receiving a bid was Atwater Valley 347 in 2,665 m.
The sale in New Orleans offered 4,447 unleased blocks covering 23.4 million acres, located 3-210 miles offshore in water depths of 4-3,425 m. Of those leases, 1,370 blocks are in less than 400 m of water, 134 are in 400-799 m, and 2,903 are in 800 m or more.
The lease term for blocks in less than 400 m of water is 5 years, with a minimum bid of $25/acre. For blocks in 400-799 m, the term is 8 years with $25/acre minimum bid. For blocks in 800 m or more, the term is 10 years with minimum bid of $37.50/acre.
Winners in Wednesday's lease sale will be announced after MMS officials review and accept their bids.
Contact Sam Fletcher at [email protected]