GULF OF MEXICO LEASE SALE GARNERS HEFTY BIDS

A.D. Keen
Senior Editor-News

Sale 152's Top Tracts (20090 bytes)

Sale 152's Top Bidders (12123 bytes)

Gulf of Mexico producers shrugged off heavy rains to put on a display of heavy bidding May 10 at U.S. federal offshore lease Sale 152 for acreage in the central gulf.

With heavy rains hindering transportation and communication in the New Orleans area-and reports of some oil company officials wading through waist deep water to submit bids on time-Minerals Management Service came within a few minutes of postponing Sale 152.

But officials at the sale site be an opening bids just minutes before the order to postpone arrived, and Sale 152 ended up among the biggest in the central gulf.

Sale participants offered 880 bids for 588 tracts, both the fourth highest totals in 41 Central Gulf of Mexico lease sales. But more important than participation were the trends reflected in the sale.

Sale 152 apparent high bids totaled $307.3 million. That was a little more than the total of 77 million in high bids offered for only 375 tracts at Sale 147 in the central gulf in April 1994, in which the bulk of bonus money went to acreage with subsalt potential (OGJ, Apr. 11, 1994, p. 36).

While many bidders at Sale 152 focused on subsalt prospects, interest appeared to increase in other types of plays. That revealed a variety among available prospects unmatched by most oil and gas hot spots around the world, onshore or off.

NEW SALE LEADERS

Some of the most active bidders at Sale 152 were companies not normally among those leading activity.

Kerr-McGee Corp. was successful on 17 of 18 offers, leading all companies with a net exposure of $49.5 million, including the sale's highest bid, an offer of $21 million for South Timbalier South Addition Block 266.

"We had some good 3D seismic data, we evaluated it carefully, and made what we believe was an appropriate bid for the acreage," a Kerr-McGee official said of Block 266.

The tract took on added value because Kerr-McGee is said to be close to announcing results of a recent well on an offset tract, South Timbalier South Addition Block 265.

In all, the company had five of Sale 152's top 10 bids

BHP Petroleum (Americas) Inc. served notice at Sale 152 it has refocused its activity in North America.

The company was successful on 79 of 90 bids, accumulating a net exposure of $31.3 million. BHP's apparent winning bid of $12.16 million for South Timbalier South Addition Block 272 was the sale's second largest offer.

"We see the Gulf of Mexico, especially the deep water and subsalt, as two of the best plays on the international scene right now," said Ed Blair, president of BHP Americas.

Blair said U.S. political and regulatory stability is a strength for the gulf, as are fiscal terms.

There also is a large amount of infrastructure in place, lots of competent offshore suppliers and service contractors work in the region, and prospects are of a size "that will allow an operator to make a good return on his capital investments," Blair said.

SUBSALT, DEEP WATER

Bidding alone, BHP apparently was successful with high bids on 21 tracts in more than 2,400 ft of water, including six for tracts in more than 8,000 ft of water. The company also was successful on 23 apparent high bids with BP Exploration for tracts in 4,200 ft of water or more.

"Anything in more than 1,500 ft of water plays into BHP's areas of expertise," Blair said. "Some of the structures in deep water are large, and the play concepts are extensions of what have been encountered on the shelf."

The sale's most aggressive deepwater bidder was BP Exploration Inc., which had 16 of 17 high solo bids in more than 2,400 ft of water, as well as 23 joint bids with BHP, all in water more than 4,200 ft deep.

While interest in subsalt prospects at Sale 152 was not as pronounced as at Sale 147, BHP was among several companies that reported a continuing interest in subsalt acreage.

"The imagery and all the other seismic work that's been done in the past few years came to the forefront at the sale," Blair said.

MORE 3D DATA

Bidding by Chevron U.S.A. Production Co. at Sale 152, where it exposed $15.2 million with 65 apparent high bids among 79 offers, was driven by the ready availability of better exploration technology.

A Chevron official said, "With the large amount of regional 3D data available, our feeling was that if we saw a prospect, we'd better bid on it now because if we don't someone else will and we won't have another shot at it."

In previous years, if a company saw a glimmer of something but hadn't entirely mapped a particular prospect, it n-tight wait until the next sale to bid on a tract.

'Our feeling was this year, we needed to do what we needed to do," the Chevron spokesman said.

Chevron also was among companies encouraged by the success of deepwater activity in the gulf. Operators have drilled big discoveries in deep water, and better exploration, drilling, and development technology is available.

"If you look at the infrastructure in the deep water, there are a lot of platforms out there; there are a lot of active projects, Chevron said. "It's a lot less scary to get into the deep water than it was 5 years ago."

Among Chevron's apparent winning bids were solo offers for six tracts in the Mississippi Canyon planning area, all in more than 4,380 ft of water. The company also was apparently successful in joint bids with BHP for 10 tracts in the Green Canyon area, seven of which are in more than 2,100 ft of water, and five Mississippi Canyon tracts , including two in more than 2,400 ft of water.

DIVERSITY OF PLAY

Although it was one of the few leading companies that reduced its net exposure from a year ago, Amoco Corp.'s participation at Sale 152 was more focused on diverse plays.

Bennett Spevack, Amoco's exploration manager for the gulf's Outer Continental Shelf, said his company's bidding this year reflected an effort that began 7 years ago to better focus its Gulf of Mexico activity on areas with potential where the company could develop prospects by applying technological capabilities.

"This year, the diversity of what we bid on was greater," Spevack said. "Last year, we increased bidding activity over what we had done in the past, but it was almost all focused in the subsalt."

Essentially, Amoco at Sale 152 focused one-third of its activity on each of these plays:

• Deepwater tracts in areas with high potential or near existing infrastructure.

• Subsalt prospects on the shelf with near term and long term potential and deep Miocene rollover formations in the West Cameron and High Island planning areas.

• Prospects on the shelf near existing Amoco projects identified by the company's production unit in New Orleans.

"Much of our activity in deep water was around areas where we have ties, such as our recent successes at Marlin and King's Peak," Spevack said. "We captured some key prospects in those areas and in areas where we thought there was similar potential as future areas of focus."

Amoco didn't see as much opportunity at Sale 152 to acquire subsalt prospects as last year, and subsalt biding this year was not as significant.

"Some companies bidding for subsalt tracts were new entrants to the play," Spevack said, "Other companies that established themselves as subsalt leaders a year ago barely bid at all."

For example, Anadarko Petroleum Corp. led all participants at Sale 147 with net exposure of $98.5 million and the sale's top bid, a $40 million offer for a subsalt tract. At Sale 152, Anadarko participated in only one joint bid, an offer with Marathon Oil Co. of $238,850 for South Timbalier South Addition Block 311.

WORLD CLASS REGION

Texaco Inc., among top participants at Sale 152, said companies are reaching out to frontier areas of the Gulf of Mexico. That's because they are becoming more familiar with technology needed to work in deep water and because evidence is growing that the gulf's deepwater oil and gas resources are big enough to justify development.

"We see Deepstar as a partnership in which companies can explore farther and farther out into the Gulf of Mexico." a Texaco official said. "So the focus on deep water is likely to become more prevalent in future lease sales.

"We saw it here, and we think this is just the beginning."

Twelve of Texaco's 36 high bid tracts were in water more than 3,000 ft deep.

Jerry Dees, senior vice-president of exploration and land for Vastar Resources Inc., said there is one unmistakable sign that the Gulf of Mexico is looking better now compared with other opportunities than it did a few years ago.

Dees said, "You can see the majors coming back not only into the deep water in a big way but also onto the shelf in the Gulf of Mexico."

If major companies were doing as well outside the U.S. as they had expected, Dees reasoned, they probably wouldn't be returning to gulf lease sales in such force.

"So we have to assume that some of the bloom is off the rose in some big foreign ventures that companies are involved in," he said. "When you compare the Gulf of Mexico with similar kinds of activity worldwide, this is a good place to invest."

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