Western Gulf of Mexico lease sale is fourth largest by bids in a decade

Despite the recent drop in offshore drilling activity, US Minerals Management Service officials expect a competitive and profitable sale Wednesday of federal oil and natural gas leases in the western Gulf of Mexico.

Aug 21st, 2001

Sam Fletcher
OGJ Online

HOUSTON, Aug. 21 -- Despite the recent drop in offshore drilling activity, US Minerals Management Service (MMS) officials expect a competitive and profitable sale Wednesday of federal oil and natural gas leases in the western Gulf of Mexico.

They already know will be a big sale -- the fourth largest in the last 10 years, based on the number of tracts receiving bids. MMS officials said Tuesday that Western Gulf Lease Sale 180 drew 386 bids from 44 companies on 320 federal tracts located off the Texas coast in the western gulf.

"You can see from the preliminary numbers that there are multiple bids on probably several tracts," said Barney Congdon, senior spokesman for the regional MMS office in New Orleans. Competition usually stimulates higher bids, he told OGJ Online.

The last federal lease sale for the western gulf last August drew 266 bids totaling $167.4 million from 60 participating companies for 226 offshore blocks. Successful high bids from that sale totaled $153.7 million.

A large portion of those bids will likely be for deepwater leases, continuing a trend in recent years.

MMS officials will begin opening bids for Lease Sale 180 at 9 a.m. Wednesday in New Orleans. Three separate online webcasts of the sale are scheduled.

No bids were received on gap tracts offered in the Central Gulf of Mexico Lease Sale 178, Part 2, which was to have been held at the same time.

A sharp decline in natural gas prices below $3/Mcf triggered a reduction of drilling activity in the Gulf of Mexico, especially in the gas-prone shallower waters on the continental shelf.

Officials at Baker Hughes Inc. reported 148 rotary rigs working offshore in US waters last week. That was only one fewer than the previous week, but down from 161 during the same period a year ago.

Officials at ODS-Petrodata Group, Houston, reported the number of mobile offshore rigs under contract in the gulf declined during 8 of the last 9 weeks, dropping through a 13-month low in late July. Utilization fell to 77.8% last week, with 165 gulf rigs under contract of the 212 available (OGS Online, Aug. 17, 2001). That's down from utilization rates of 84% the previous month; 85.5% a year ago; and 90.1% 5 years ago, officials said.

Utilization of gulf rigs hovered around 90% or better for most of the last year, officials said.

The increased number of stacked rigs in gulf waters is a clear signal of the decline in drilling for natural gas, said W. Mark Meyer, vice-president of E&P research at Simmons & Co. International.

Meanwhile, industry sources report up to 80% of the independent operators in the gulf have already spent their offshore budgets for this year.

Soft market conditions are likely to continue into the first quarter of next year, ODS-Petrodata officials said.

The fall off in demand is affecting drilling contractors. Global Marine Inc., Houston, reported its worldwide Summary of Current Offshore Rig Economics (SCORE) for July fell by 0.3% from June (OGJ Online, Aug. 20, 2001).

Global Marine CEO Bob Rose said the slowdown in drilling activity in US waters forced contractors to reduce day rates. However, he said, oil companies are bidding up day rates to attract equipment to the tighter international markets.

Still, MMS officials are projecting oil production from the Gulf of Mexico will increase to 1.52-1.97 million b/d of oil by the end of 2005, up from 945,000 b/d in 1995. Natural gas production from the gulf is expected to escalate to 11.1-16.5 bcfd during the same period from 13.1 bcfd in 1995.

The western gulf is estimated at hold 3-4.5 billion bbl of oil and 16-24 tcf of gas.

Last month, the MMS proposed its next 5-year offshore leasing plan for 2002-2007 that would feature 20 lease sales in the western, central, and part of the eastern Gulf of Mexico and in Alaska's Beaufort Sea, Norton Basin, Cook Inlet/Shelikof Strait and the Chukchi Sea/Hope Basin.

Over the next 20 years, US consumption of oil is expected to rise 33% over the next 20 years while natural gas consumption is predicted to increase more than 50%, with a 45% jump in demand for electricity.

Contact Sam Fletcher at samf@ogjonline.com

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