Rig concerns don't stem gulf sale confidence

Top apparent high bidders in sale 168 [67,319 bytes]

Despite some lingering concerns about rig availability, oil companies exhibited strong confidence in the Aug. 27 western Gulf of Mexico sale.

In Sale 168, companies offered $616 million in high bids on 804 tracts, the strongest western gulf sale since 1984 (OGJ, Sept. 1, 1997, p. 30).

The Minerals Management Service said total apparent high bids were up 73% from last year's $356 million western gulf sale. A record 1,224 bids were received, compared with 617 in the western gulf sale last year.

The sale was the second in the western gulf-and only the fourth overall-in which tracts in water deeper than 200 m could be eligible for royalty relief under a 1995 law designed to spur development of marginally economic fields.

Deepwater tracts dominated the sale. MMS said 603 of the 804 tracts receiving high bids were in more than 800 m of water. The deepwater tracts drew high bids of $464 million vs. $616 million for the sale overall and $734 million of the $939 million total exposed.

MMS has 90 days in which to review high bids to ensure the government receives fair market value. In the last two sales, MMS had to give itself more time than that. An MMS official said, "It may be easier for us this time, because there were a lot of one-bid tracts, but we won't know for about a month."

Top 10 firms

An official with BP Exploration & Oil Inc., the second largest bidder in the sale with 80 apparent high bids (see table), said, "It was a big sale for us. We're real pleased with the outcome. We went into the sale thinking if we could get 59% of the leases we bid on, we would be happy. As it turned out we got 60%."

He said all of BP's 80 tracts were in 2,000-8,000 ft of water, and the bulk of BP's bidding was in the Keathley and Alaminos Canyon areas. BP bid alone. The company has commitments for rigs, and the official said drilling the tracts shouldn't be a problem.

"This sale works right into our strategy to enhance our presence in the western gulf. With the sale, we doubled the number of leases we hold there, and are at our highest number of leases since 1983."

Vastar Resources Inc. was apparent high bidder, solo or with others, on 33 tracts, including 27 in deep water. If all bids are awarded, its deepwater position will total 86 blocks. The company has a multi-year contract for Diamond Offshore's Ocean Victory, which is being upgraded to drill in waters as deep as 5,000 ft. The first well to be drilled is the King prospect on Mississippi Canyon Block 765 in 3,300 ft of water.

Spirit Energy 76, Unocal Corp.'s U.S. exploration and production business unit, said it was apparent high bidder for 45 tracts, including 36 in deep water, and winning positions on six of its top nine prospects. Spirit Energy exposed $43.5 million for deepwater acreage and $47.2 million in the sale overall. It was fourth in the number of bids submitted, 92.

An Amoco Production Co. official said, "We're thrilled with the sale. It looks like we batted a thousand. We consolidated around existing leaseholdings and added prospective areas."

He said Amoco tied for fifth in the number of apparent high bids-88, and all in deep water-but was 17th in the amount of money spent, so, "We captured the blocks that were important to us at low cost."

The official said that Amoco was not concerned about drilling its prospects, because it has a drillship and a semi under contract, as well as a contract for a drillship under construction that can operate in 7,000 ft of water.

Chevron U.S.A. Production Co. said it successfully bid on 64 of 101 blocks, and will have more than 300 deepwater leases.

Andy Hardiman, manager of Chevron's exploration division in New Orleans, said, "This will help us move from being just a player to being a significant competitor in the western gulf. We were able to get positions in about nine of the 10 prospects we'd targeted."

Many of Chevron's blocks were in the Alaminos Canyon area in water depths as great as 8,000 ft. Exploratory drilling will begin in about 2 years.

Hardiman said Chevron bid without partners for the first time in a federal lease sale. "We want to go it alone where we can," he said.

Other firms

Occidental Oil and Gas Corp. picked up three blocks for about $9.7 million.

Oxy tendered the sale's highest offer of $8,123,000 for Keathley Canyon 157, the most sought-after tract in the sale with 11 bids. It is in 5,500 ft of water. Oxy also bid $1,123,000 and $423,000 for East Breaks Blocks 476 and 477, respectively.

Roger Abel, president and chief operating officer of the oil and gas division, said, "This signals Oxy's return to the Gulf of Mexico. We've identified the gulf as the top exploration play in the U.S., and now we're aggressively re-entering the region after a 9-year absence."

Oryx Energy Co., Louisiana Land & Exploration Co., and Statoil Exploration (U.S.) Inc. were partners in deepwater bidding. Oryx participated in the apparent high bids for 42 tracts. Thirty are in 2,500-5,000 ft of water. It will own a third to a half interest in the deepwater blocks and will operate 80% of them.

Louisiana Land & Exploration was apparent high bidder for 25 tracts in 3,100-7,000 ft of water, of which three were 100% LL&E and the rest were one third each with Oryx and Statoil.

H. Leighton Steward, LL&E chairman, CEO, and president, said, "We have once again significantly increased our lease position in the deep waters of the Gulf. If all of these bids are accepted, LL&E will own nearly 100 blocks in water depths greater than 600 ft. LL&E and its partners are negotiating for long-term use of a deepwater drilling rig that would be available for drilling beginning in 1999."

Conoco Inc. was apparent high bidder on 17 of 26 deepwater blocks it sought. It has a 100% interest in 13 of the 17. Conoco has acquired 131 deepwater tracts in the gulf in the last four lease sales, bring it to 161 leases in more than 1,000 ft of water.

R.E. McKee, Conoco executive vice-president for E&P, said, "Today we are better positioned in the deep waters of the gulf and are fully prepared to put the first of our two new deepwater drillships to work when it is completed next year."