INDUSTRY OFFERS $589.5 MILLION FOR GULF TRACTS

Rick Hagar
Gulf Coast News Editor

Nearly 100 operators exposed more than half a billion dollars last month in an areawide sale of federal leases off Louisiana, Mississippi, and Alabama.

The Minerals Management Service said a number of apparent high bids submitted in Sale 123 will be rejected because some companies did not sign their bids.

The sale, conducted Mar. 21 in New Orleans and covering the central Gulf of Mexico, saw 96 companies offer $589,547,008 in 840 bids for 538 tracts (OGJ, Mar. 26, Newsletter). Apparent high bids amounted to $427,413,211.

In last year's central gulf sale, 81 companies exposed $477 million in 821 bids for 591 tracts. Apparent high bids last year amounted to $398 million.

Although large, Sale 123 was not as large as the 1988 central gulf sale when 84 companies exposed $593 million in 931 bids for a record 684 tracts.

Bidding for deepwater tracts was down for the second year in a row. Only 168 of the tracts that received bids were in water deeper than 600 ft, compared with 192 last year and 293 in 1988.

TOP BIDDERS

Sale 123's biggest player was BP Exploration Western Hemisphere, which exposed $78 million in 79 apparent high bids. Last year, BP exposed $55 million in 110 apparent high bids.

Shell Offshore Inc. was second behind BP with a $40 million exposure in 54 apparent high bids. Shell last year exposed $49 million in 76 apparent high bids.

Union Texas Petroleum Corp. was the most active independent at the sale. The company was eighth overall with a $12 million exposure in 19 apparent high bids.

A surprise of the sale was the level of activity by ARCO Oil & Gas Co. ARCO was the sale's third biggest player with a $39 million exposure in 44 apparent high bids.

Another surprise was that unlike previous sales, in which deepwater bids generally were single, minimum bid offers, this year's sale featured a high dollar battle in deep water, mainly between BP and Shelf.

The Green Canyon area received 75 apparent high bids, making it the most active in the sale. Second most active was West Cameron, which received 71 apparent high bids.

HIGHEST BID

The apparent high bid of the sale was an $11 million offer for Vermilion South Addition Block 395 from a combine of Agip Petroleum Co. Inc. and Union Texas.

The bid apparently beat out an $8.4 million offer from a combine of Adobe Resources Corp. and Transco Exploration & Production Co., $8 million from Hall-Houston Oil Co., and $6.2 million from a combine of Northwestern Mutual Life Insurance Co. and FMP Operating Co.

It was the second year in a row that the Northwestern Mutual-FMP combine tried to acquire Vermilion South Addition Block 395. The team offered $5.2 million last year in that sale's fourth highest apparent high bid, but MMS rejected the bid.

Highest bid per acre honors went to West Delta Block 22, for which Samedan Oil Corp. offered $4.8 million ($3,559.12/acre).

East Cameron South Addition Block 298 and Ship Shoal South Addition Block 283 each received a sale high eight bids.

Maxus Energy Corp. apparently won East Cameron South Addition Block 298 for $4.3 million, while BP apparently acquired Ship Shoal South Addition Block 283 for $6.1 million.

BID STRATEGIES

One reason for the high level of bidding in Sale 123 was concern that MMS may replace the area-wide leasing concept with the nominated tract scheme, said Dwight Johnson, Texaco U.S.A.'s exploration manager for the central and eastern gulf.

Several operators approached the sale as a last opportunity to acquire central gulf tracts through the area-wide process.

"We were up substantially from the number of tracts we bid on in the last sale," said Johnson. "In fact, I think all the majors were more active than in the last sale."

Bill Krips, senior vice-president of U.S. exploration/production for Union Texas, and John Beitzel, vice-president of ARCO's eastern exploration operations, said the possible change in the leasing program also caused their companies to expand an already aggressive leasing plan.

Another reason for the increase in activity is a growing need to replace gas deliverability in the gulf, combined with a greater optimism that gas prices are recovering, said Beitzel.

Gas reserve life in the gulf is typically short. Deliverability is dropping in part due to a lack of aggressive drilling in recent years.

SEARCHING FOR GAS

"We are looking for gas," said Beitzel. "There are some oil opportunities in the deep water, but we didn't go for any deepwater tracts."

Beitzel said ARCO's bids were weighted toward rank wildcat gas prospects. At least two of the prospects will be drilled this year if ARCO wins the lease. The company's bids were scattered in the East Cameron, Eugene Island, Main Pass, Ship Shoal, South Marsh Island, South Timbalier, Vermilion, West Cameron, and West Delta areas.

All but six of Texaco's 43 bids were for tracts in less than 600 ft of water. Most were for rank wildcat gas prospects, although eight were for tracts adjacent to full interest and partial interest leases.

Texaco's bids were in East Cameron, Eugene Island, Ewing Bank, Green Canyon, Main Pass, South Pass, South Timbalier, Vermilion, and West Delta areas.

"We will try to drill some of our tracts this year," said Texaco's Johnson.

Adding gas reserves also was the objective of Union Texas, said Krips.

"We want to keep our gulf program growing because that's where we have the staff, capability, and experience," he said.

Most of his company's bids were for rank wildcat gas prospects in the Ship Shoal, South Marsh Island, South Timbalier, Vermilion, and West Cameron areas.

DEEPWATER ACTIVITY

Among the 168 deepwater tracts that received bids, BP was apparent high bidder on 60 and Shell 50.

Jack Golden, BP's vice-president and general manager of exploration, said his company's strategy worldwide is to get heavily involved in unexplored basins.

"We view the deepwater gulf as one of those basins," he said. "We've been aggressively acquiring deepwater leases in the last three area-wide sales."

He said some of the high dollar tracts on which BP was apparent high bidder will be drilled as early as next year. The deepwater tracts for which BP offered more than $1 million were Atwater Valley Blocks 24, 66, 67, 180, 222, and 223, Green Canyon Blocks 155, 156, 201, 259, and 437, and Mississippi Canyon Block 818.

The company recently signed Sonat Drilling Co.'s Discoverer 534 drillship to a long term contract. Golden said the unit this year will begin drilling prospects acquired in last year's sales.

"We plan an aggressive deepwater program," he said.

William H. Broman, Shell Offshore's general manager of exploration, said his company also plans early drilling on deepwater tracts it acquired in the sale.

Deepwater tracts for which Shell offered apparent high bids of more than $1 million were Atwater Valley Blocks 113 and 114, Ewing Bank Blocks 921 and 965, Green Canyon Blocks 180 and 181, and Mississippi Canyon Blocks 661, 705, 855, and 900.