GULF OF MEXICO LEASE SALE DRAWS LITTLE INDUSTRY INTEREST

A.D. Koen
Gulf Coast News Editor

Depressed gas prices and constricted company budgets severely curtailed U.S. operators' interest in the ninth area-wide lease sale in the western Gulf of Mexico.

Participation in last week's Outer Continental Shelf Sale 135 dropped to the lowest level seen in a western gulf lease sale since 1986.

In OCS Sale 105, in which Minerals Management Service in August 1986 offered 4,918 western gulf tracts, 16 operators made 52 bids for 41 tracts in a sale that took only 15 min (OGJ, Sept. 1, 1986, p. 24).

In OCS Sale 135 Aug. 21 in New Orleans, 55 companies offered 182 bids totaling $76,743,875 for 142 tracts. Apparent high bids totaled $62,646,526.

Even so, offers and apparent high bids barely edged out 1986 totals, when participants offered $69,498,490 and apparent high bids amounted to $56,817,990.

Louisiana mounted an unsuccessful legal challenge to last week's sale. A federal judge in New Orleans rejected the state's argument that it needs federal aid to ease coastal effects of offshore petroleum operations (OGJ, Aug. 19, p. 18).

BIDDING HIGHLIGHTS

Tatham Offshore Inc., Houston, and NGPL Exploration Inc., a subsidiary of Natural Gas Pipeline Co. of America, Lombard, Ill., topped four other bidders for Garden Banks Block 72 with an offer of $3,713,131, the highest bid in Sale 135.

The winning bid for Garden Banks 72 was the sole offer by either company in the sale. But with Tatham and NGPL each gaining 50% interest in the block, both companies cracked the list of top bidders in Sale 135.

The five bids for Garden Banks 72 were the most offered for any block in the sale. Block 72's apparent high bid average of $644.64/acre was the highest average bonus in Sale 135.

Sale 135's second highest apparent winning bid was an offer by Phillips Petroleum Co. of $3,183,960 for East Breaks Block 167.

Chevron U.S.A. Inc. bid $3,132,000 on Garden Banks 343, the third highest successful offer in the sale.

Amerada Hess Corp. led activity sale-wide, apparently winning 17 of 18 tracts for which it submitted bids. The company's net bonus exposed was $8,784,720.

Hardy Oil & Gas Inc. U.S.A., Houston, was the most active independent in Sale 135, with seven of 10 apparent high bids totaling $1,926,350.

MORE THAN RESERVES

Tatham and NGPL were able to offer Sale 135's top bid for Garden Banks 72 because the tract held more value for them than the block's estimated reserves of 10 million bbl of oil equivalent.

Tatham is a subsidiary of DeepTech International Inc., Houston.

NGPL and Leviathan Gas Pipeline Co., another DeepTech subsidiary, are 50-50 owners of Stingray Gas Pipeline.

Tom Tatham, DeepTech chairman, said being able to control the tract will help DeepTech extend Stingray pipeline into the deepwater area of Garden Banks.

"We're going to need a master platform to gather gas from other projects, so we felt if there was an open block with significant reserves, that would be about as good a place as we could find," Tatham said.

"Garden Banks 72 is in the path of our proposed expansion."

FILLING IN ACREAGE

For Mobil Exploration & Producing U.S. Inc., Sale 135 offered an opportunity to fill in existing leaseholds in the East Breaks area.

"It wasn't so much that we were embarking on a new strategy in this sale," said Harvey Smith, Mobil general manager of exploration. "If you look at what we did in OCS Sale 125, it's just a bit more of the same.

"We were bidding somewhere around the minimum. Our highest bid was just a little more than $200,000."

All 12 bonuses Mobil offered in the sale were apparent high bids, despite averaging slightly less than $174,000/offer. Eleven of its apparent high bids were for tracts in more than 1,500 ft of water. Seven of Mobil's 12 apparent winning bid were in the East Breaks area. The company hopes to spud a wildcat on East Breaks 475 this year.

CHEVRON STRATEGY

Chevron approached Sale 135 with the belief that industry interest and participation would be extremely low.

"There have been so many announcements of cutbacks and other bad news, the size of the sale was very predictable," said Bill Hazlett, supervisor of economic evaluations in Chevron's eastern U.S. business unit. "With so many companies in financially poor shape and gas prices so low, because the Gulf of Mexico is predominantly a gas province, I felt independents would have to carry the ball in this sale. I could see majors having our plates full in deep water, where we've spent most of our money in recent sales.

"I would have been surprised if anything different had happened."

Chevron was apparent high bidder on all seven tracts it sought. Six of its bids were for tracts in 1,400-2,800 ft of water in the Garden Banks area. The other bid, an offer for High Island Block 156, consolidated an existing leasehold.