MMS sets eastern Gulf lease sale for December 2001

The US Minerals Management Service has scheduled a long-awaited Eastern Gulf of Mexico lease sale for December 2001. Sale 181 would offer 1,033 blocks covering 5.949 million acres in the western portion of the eastern Gulf, starting 15 miles off the Alabama coastline and extending south into the deepwater region.


Washington, DC�The US Minerals Management Service (MMS) has scheduled a long-awaited Eastern Gulf of Mexico lease sale for December 2001.

Sale 181 would be the first eastern Gulf sale since 1988. The proposed sale area includes 1,033 blocks covering 5.949 million acres in the western portion of the eastern Gulf, starting 15 miles off the Alabama coastline and extending south into the deepwater region.

If held, it would be the only eastern Gulf sale until 2012 (OGJ, Apr. 17, 2000, p. 34).

The sale area is adjacent to the Mississippi Canyon region of the central Gulf, which has prolific gas production. The MMS estimates the sale area could contain up to 370 million bbl of oil and 3.2 tcf of gas.

Industry representatives told MMS that oil companies are interested in the DeSoto Canyon and the Destin Dome areas along the boundary between the eastern and central Gulf areas, which may be associated with Mississippi Canyon production. Water depth in the lease sale area are 108-10,980 ft.

Sales in the eastern Gulf have been few because of Florida's objection to drilling within 100 miles of its coastline.

MMS noted the proposed sale area is "at least 100 miles offshore Florida," as well as 15 miles off the Alabama coast and 64 miles off Louisiana.

MMS will accept public comments on the draft environment impact statement for the sale until Jan. 23. It will hold public hearings in January in New Orleans, La.; Mobile, Ala.; Pensacola, Fla.; and Tallahassee, Fla. The final EIS is due to be issued in June, the proposed notice of sale in July, and the final notice in October.

Reactions
"We are delighted that the MMS has found that it is ready to go through" with the sale, said Tom Michels, a National Ocean Industries Association spokesman. "You can never predict a lease sale, but my feeling is that it will be very successful."

Michels said because the blocks were far from its coast, Florida probably would not object. But he said some blocks could be deleted because of US Air Force activity in the gulf.

Bob Rose, chairman, president and CEO of Global Marine Inc., said he expected plenty of interest in the eastern gulf lease sale, but also anticipates skepticism as well. "Just because you'll be able to win a bid in a lease sale, doesn't mean you'll be able to get the permits," Rose said, referring to the Destin Dome dispute between Chevron Corp., Conoco Inc., and Murphy Exploration & Production Inc. and two departments in the US government.

But he said the fact that MMS is offering eastern gulf tracts can be taken as a positive sign. "This could be our opportunity to sway public opinion over objections to drilling offshore Florida, to show that it can be done without creating environmental problems."

Brian Petty, vice president of regulatory affairs for the International Association of Drilling Contractors, said the proposed Lease Sale 181 is "vital" to the future of oil and natural gas development in the Gulf of Mexico, especially as gas demand and prices continue rising.

"We have a crisis looming [in gas], which is illustrated every day by rising prices, a further indication that we've got to go out and explore." Tapping the hydrocarbon potential of the unexplored, unmapped Gulf of Mexico will become even more critical as new opportunities in the central and western Gulf of Mexico become more scarce.

Petty said he thinks energy companies will be more at ease bidding on properties in Sale 181 because the properties more than 100 miles from the Florida coast were selected. "There's a real appetite by companies to get into the eastern Gulf of Mexico to explore."

Destin Dome
One source said companies might hold off bidding on eastern Gulf of Mexico properties until they see the outcome of the Destin Dome gas development. Chevron Corp. USA, Conoco, and Murphy Exploration & Production filed suit in a federal claims court after the US government blocked development of the Destin Dome natural gas field 25 miles off Pensacola, Fla., in the eastern Gulf of Mexico. (OGJ Online, July 26, 2000).

The companies challenged a "Catch-22" arrangement between two US regulatory agencies that blocked "politically unpopular" plans to develop Destin Dome 13 years after the first discovery well was drilled on that prospect. The three companies are equal partners in the project, with Chevron serving as operator.

According to the US Department of Energy, the field contains potential reserves of up to 2.6 tcf of dry gas that could help fuel Florida's growing gas market. Years after the nine federal leases comprising Destin Dome were sold and drilled, Florida officials wanted to ban all offshore drilling within 100 miles of the state's coasts.

In March 1998, Chevron filed an appeal with the US Secretary of Commerce seeking to override Florida officials' attempts to block development of the Destin Dome field. That appeal has since been tied up in a review by Commerce officials.

The suit alleges that the US Environmental Protection Agency last year stopped processing necessary environmental permits for that project, pending a decision by the Department of Commerce on Chevron's application.

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