HIGHER GAS PRICES FUEL OCS SALE 142 BIDDING

A. D. Koen Gulf Coast News Editor Higher U.S. wellhead gas prices fueled participation at last week's federal offshore lease sale after more than 3 years of declining interest. Sixty companies at Minerals Management Service Outer Continental Shelf (OCS) Sale 142 offered 262 bids totaling more than $86 million for 200 tracts in the central Gulf of Mexico. Apparent winning bids submitted during the sale in New Orleans totaled slightly more than $69 million.

March 29, 1993

5 min read

A. D. Koen
Gulf Coast News Editor

Higher U.S. wellhead gas prices fueled participation at last week's federal offshore lease sale after more than 3 years of declining interest.

Sixty companies at Minerals Management Service Outer Continental Shelf (OCS) Sale 142 offered 262 bids totaling more than $86 million for 200 tracts in the central Gulf of Mexico. Apparent winning bids submitted during the sale in New Orleans totaled slightly more than $69 million.

One year ago, companies participating in OCS Sale 139 offered just $65.3 million for 151 tracts in the central gulf, and high bids amounted to $56.2 million (OGJ, May 18, 1992, p. 25). At the time, both bidding totals were the lowest since MMS began area-wide leasing at OCS Sale 72 in May 1983.

But both record lows were eclipsed last August at OCS Sale 141 for the western gulf, where companies offered combined bids of $36.7 million and apparent high bids totaled only $30.6 million (OGJ, Aug. 24, 1992, p. 32).

While still puny by historical standards, Sale 142's bidding totals signaled that some operators working in the gulf believe higher gas prices could persist.

LEADING THE FIELD

A major U.S. integrated company and a little known independent led last week's modest turnaround.

Amerada Hess Corp. topped all bidders at the sale, with 14 apparent high bids in 14 offers and gross exposure of more than $14.5 million.

The company had the sale's highest and fourth highest bids-$3.58 million for East Cameron South Addition Block 319 and $1.68 million for Vermilion South Addition Block 272, respectively. In addition, it teamed with Marathon Oil Co. on Sale 142's second highest offer, $3.12 million for East Cameron South Addition Block 312.

Amerada Hess's bid on East Cameron South 319 averaged $716/acre, highest in the sale.

But Zilkha Energy Co., Houston, stole the show.

Because of low interest in recent offshore lease sales, Zilkha believed Sale 142 would be a good opportunity to acquire substantial acreage in the Gulf of Mexico at a reasonable cost.

Bidding alone on shallow water tracts with good exploration possibilities and weighing likely offers by companies it expected to compete for the acreage, Zilkha offered $5,623,730 for 42 blocks spread across the central gulf and came away with 33 apparent winning offers on a net exposure of $4,147,980.

WINDOW OF OPPORTUNITY

Put another way, Zilkha bid on one in five blocks that received bids in Sale 142. It was the only company bidding on the 33 tracts it apparently won, but lost all tracts where it was challenged by other companies.

"We were really hoping to inventory good acreage in prolific areas that we could work on over the next 5 years," said Jack B. Homes, Zilkha president and chief operating officer.

"We were surprised by the low level of participation at last year's central gulf sale and hoped it would be that way again this year. We saw Sale 142 as a window of opportunity and decided we would commit the money and do it.

"So now we've got a substantial addition to our already good inventory of offshore acreage and we have 5 years to work on it."

Even without Zilkha's participation in Sale 142, total bids by other companies would have surpassed offers last year at Sale 139. Holmes attributed companies' increased willingness to bid for acreage to higher U.S. gas prices.

"Last year at this time, gas prices were hovering around $1/Mcf. Today they're about $2/Mcf," he said. "When you look at the effect on net profits, the price difference means the profit earned from selling an Mcf of gas is probably up three or four fold."

OTHER SALE HIGHLIGHTS

Two blocks offered in Sale 142 received five bids:

On East Cameron Block 149, a joint bid of $955,000 by a combine of Seneca Resources Corp., Hardy Oil & Gas U.S.A. Inc., and Nippon Oil Exploration U.S.A. Ltd. topped offers by Norcen Explorer Inc., PG&E Resources Offshore Co., Seagull Energy E&P Inc., and a joint offer by King Ranch Oil & Gas Inc. and Holly Petroleum Inc.
On Vermilion South Addition Block 258, Anadarko Petroleum Corp.'s bid of $1,060,945 beat out offers from General Atlantic Gulf Coast Inc., Petsec Energy Inc., Diamond Shamrock Offshore Partners Ltd. Partnership, and King Ranch.

West Cameron Block 92, West Cameron Block 201, Eugene Island Block 75, and Ship Shoal Block 193 each received four bids.

Marathon amassed a gross exposure of more than $5.126 million with four high bids among five offers totaling more than $5.83 million. In addition to Marathon's joint bid of $3.12 million with Amerada Hess for East Cameron South 312, the two companies offered a high joint bid of $749,300 for Ewing Bank Block 829.

Seneca Resources' offer of $3.06 million for West Cameron South Addition Block 552 boosted its gross exposure to more than $4.43 million and placed it among the top bidders in Sale 142.

Shell Offshore Inc. was high bidder on 12 of 13 offers, including eight in deep water. Shell posted a net exposure of $4.58 million on bids of $5.25 million.

Diamond Shamrock exposed a net $3.16 million, with six high bids in seven tries totaling $3.35 million.

BP Exploration & Oil Inc.'s offer of $194,000 was the high bid for Mississippi Canyon Block 507. It lies in 3,900 ft of water, the deepest for tracts apparently to be awarded in Sale 142.

Sun Operating Ltd. Partnership with lone or joint high bids on 10 deepwater tracts, Shell with eight, and BP with seven paced renewed interest in the central gulf's deepwater acreage.