The region-wide Gulf of Mexico lease sale, held Aug. 15 in New Orleans by the US Bureau of Ocean Energy Management, generated $178.1 in apparent high bids for 144 tracts. There were 14,622 tracts on offer in the gulf’s federal waters.
A total of 23 companies submitted bids totaling $202.7 million in Lease Sale 251, which covered more than 78 million acres in areas 3-231 miles offshore in the gulf’s western, central, and eastern planning areas in 3-3,400 m of water.
ExxonMobil Corp., BP Exploration & Production Inc., and Hess Corp. filled the top three spots of companies with the number of apparent high bids submitted. ExxonMobil submitted 25 apparent high bids totaling $40,555,000; BP, 17 totaling $12,571,230; and Hess, 16 totaling $36,178,321.
The deepest block receiving a bid was Lloyd Ridge Block 239 in 3,024 m of water. The tract receiving the greatest number of bids was Green Canyon 437 with 4 bids. The highest bid on a block, made by Hess, was more than $25.9 million for Mississippi Canyon 338 in more than 1,600 m of water.
Deepwater was the main draw at the sale, with a rounded $111.6 million in apparent high bids received for 55 tracts offered in greater than 1,600 m of water. More than $48.5 million in apparent high bids was received for 43 tracts in 800-1,600 m of water.
Chevron USA Inc., with a bid of about $11.1 million, was the company submitting the second single-highest bid in its try for Mississippi Canyon Block 743 in more than 1,600 m of water.
This latest lease sale is the third offshore sale under the Outer Continental Shelf Oil and Gas Leasing Program for 2017-22. Under the program, 10 region-wide lease sales are scheduled for the gulf.
The OCS, covering about 160 million acres, contains about 48 billion bbl of undiscovered technically recoverable oil and 141 tcf of undiscovered technically recoverable gas, according to BOEM.
“The Gulf of Mexico is a long-established oil and gas province and many of the blocks offered at today’s sale have been offered many times before,” said Kate MacGregor, US Department of the Interior’s principal deputy assistant secretary. “Today’s results demonstrate a steady interest as serious innovation and engineering continues to unlock new energy resources deep below the seabed.”
Ahead of the sale, BOEM noted that fiscal terms of the sale take into account market conditions and ensure taxpayers receive a fair return for use of the OCS. Terms include a 12.5% royalty rate for leases in water depths less than 200 m, and 18.75% for all other leases issued in the sale. The rates recognize current hydrocarbon price conditions and the marginal nature of remaining gulf shallow-water resources, BOEM said.
Commentary, highlights
Following the sale, William Turner, Wood Mackenzie senior research analyst, stated that the sale marked an increase of about $53 million, or 43%, from the last region-wide lease sale held in March (OGJ Online, Mar. 21, 2018).
“With a decrease in acreage from March and the prospect of lower royalty payments for deepwater acreage off the table, expectations were muted going into this lease sale,” Turner said.
“However, with an increase in competitive bids and dollar amount from the last round, companies demonstrated their continued confidence in the region. Increased competition centering around more-selective blocks close to infrastructure tells us that capital is returning to the Gulf of Mexico,” he said.
About 40% of blocks made a return from lease sales in 2007 and 2008, Turner said, “including a sizable portion of blocks towards the east picked up by ExxonMobil, previously held by Shell,” adding, “Shelf bidding decreased this round but was still stronger than recent low rounds.”
Turner said, “The biggest surprise came from Hess with the highest bid of the round. It bid $25.9 million on a block in the heart of the Mississippi Canyon near BP’s Na Kika offshore platform. Surprising as it is also near the Silvergate prospect, a dry hole.”
Meanwhile, Turner said, companies like Equinor and ExxonMobil as well as others showed “an increased appetite for risk with bids on remote blocks.” He said, “This reflects the steady increase in oil price and competitive [return on investment] now due to much more efficient practices in the Gulf of Mexico.”