WoodMac: 2007 lease sales forecast at $1 billion

Edinburgh consultant Wood Mackenzie Ltd. forecasts that proceeds from this year's Gulf of Mexico lease sales 204 and 205, based on past total winning bids, could reach $1 billion.

By OGJ editors
HOUSTON, July 30 -- Edinburgh consultant Wood Mackenzie Ltd. forecasts that proceeds from this year's Gulf of Mexico lease sales 204 and 205, based on past total winning bids, could reach $1 billion.

The estimate represents a high not seen in the region for a decade, WoodMac said in its recent report, "GOM Lease Sales 204 and 205 exposed."

Also in that report, WoodMac identifies 594 deepwater blocks that may be included—double the annual average number of leases offered between 1997 and 2006, the report said.

WoodMac warned, however, that the anticipated higher bid totals and more leased acreage will not necessarily lead to a proportional increase in exploration and production.

According to Matthew Jurecky, Americas upstream analyst for Wood Mackenzie, "Tightness in the deepwater oil field services market, especially in drilling rigs, is likely to limit the benefits of accumulating a mass of blocks as happened a decade ago."

In 1997 a record 1,242 deepwater blocks were leased, representing 255% more than the 10-year average for 1997-2006. That record amount was followed by a further wave of blocks in 1998 with 878 leases, he said.

"Due to a combination of incentives such as deepwater royalty relief, robust oil and gas prices, and technological advances," he said, "companies leased more than they were physically able to explore.

"A rig conundrum followed as a result of higher oil prices, increased production commitments, and frontier plays becoming more feasible; companies could not even drill potentially exciting blocks in order to get a lease term extension."

Now 10 years later, he pointed out that these leases are "expiring and up for grabs."

Jurecky said the WoodMac analysis identifies 594 deepwater blocks within Minerals Management Service deadlines for inclusion in the 2007 lease sales, compared with 245—the average number of newly expired blocks offered for lease in 1997-2006.

"Many of these deepwater blocks are located in plays which could lead to impressive finds," he added.

He said the area likely to draw most attention is the Lower Tertiary, which is spread between Alaminos Canyon, Keathley Canyon, and Walker Ridge. The report indicates that 41% of the blocks Wood Mackenzie identified are in this area, and interest is likely to be fueled by the successful flow test carried out last year at Chevron Corp.'s Jack well.

Jurecky said, "Being a frontier play, there is less known about the area's geology. In these cases, drilling as close as possible to known discoveries and possible future hubs reduces perceived risk and the size at which a field becomes profitable to develop."

He continued, "Some believe that the Lower Tertiary trend extends as far north as Garden Banks, adding, "More bullish expectations on the play will likely lead to aggressive bidding in the trend."


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