Gas prices buoy Gulf of Mexico leasing recovery

OCS Sale 143 Top 10 Tracts [129,443 bytes]

Higher U. S. gas prices boosted interest in Outer Continental Shelf acreage at last week's federal lease sale for the western Gulf of Mexico.

With 48 companies offering 197 bids totaling $80,134,112 for 157 tracts, Sale 143 marked the second federal Gulf of Mexico lease sale in a row to reverse 3 years of declining participation. In the Minerals Management Service's OCS Sale 141 for the western gulf in August 1992, 38 companies offered 81 bids totaling $36.1 million for 61 tracts.

Sale 143 apparent winning bids totaled $64,338,759, up from $30.62 million in Sale 141, At OCS Sale 142 last March covering tracts in the central gulf, 60 companies offered more than $86 million for 200 blocks, a modest turnaround from prior year levels (OGJ, Mar. 29, p. 27).

Altogether, 848,686 acres of the 25.7 million acres MMS offered in Sale 143 received bids. Interest in the gas prone western gulf created by higher prices was further buoyed by the urgency some companies felt to tie up prospects while MMS still is leasing acreage via areawide sales. But just before bids were read, MMS Director Tom Fry sought to ease those concerns by assuring there are no plans to end areawide gulf leasing.

Sale 143 highlights

BP America Inc. paced all bidders with 23 solo apparent winning bids of 23 offered, all in deep water. The company's apparent net exposure topped the field with $6.1 million. Nineteen of BP's apparent top bids were in the Port Isabel area off the southern tip of Texas.

Enron Corp. exposed more than $5.9 million by winning six of eight bids, including 75% interest in Sale 143's third highest winning bid. Enron and Brooklyn Union Exploration Co.'s bid of $4,175,775 for Mustang Island Block 739 topped three other offers.

Hall-Houston Oil Co. 49%, Global Natural Resources Corp. 36%, and Santa Fe Minerals Inc. 15% offered the sale's top bid. The three beat out five other offers for Mustang Island Block 783 with a bid of $5,055,000. The block also drew the sale's most bids and had the highest bid/acre with $877.611 acre. Other tracts netting four bids were:

Mustang Island 759, won by Enron and Brooklyn Union.
Galveston Block 227, won with an $866,250 joint bid by King Ranch Oil & Gas Inc. and Holly Petroleum Inc.
Galveston Block 237, won with a joint bid of $341,250 by King Ranch and Holly.

Other sale leaders

Honors for Sale 143's second highest apparent winning bid went to Texaco Exploration & Production Inc. and Unocal Corp. They won Garden Banks Block 406 with a 50-50 offer of $4,210,560. The bid put Texaco and Unocal among the sale's leaders, with net exposures of $3.67 million and $2.77 million, respectively, Amerada Hess again was among the most active companies in a Gulf of Mexico lease sale. The company was successful on 19 of 22 offers, all but one 100%, for an apparent net exposure of $4.989 million. In Sale 142, Amerada topped all bidders with $14.5 million in gross exposure. At last year's western gulf sale, it led in net exposure with total high bids of almost $5.4 million.

Other companies that placed among Sale 143's most active were:

CNG Operating Co., with four winning bids in four offers and a net exposure of $4,189,536.
Oryx Energy Co. with a net exposure of $4,073,662 on 10 of 13 bids.
Seagull Energy E&P Inc., with a net exposure of $3,124,994 on 11 of 16 bids, all with 100% interests.

Seagull's Alan Payne said the company used Sale 143 to bolster its acreage position on the Seagull trend in Galveston and Brazos areas.

"We stuck with the basics," he said, "We were concentrating on what we liked, based on geology and geophysics."

Leasing strategies

BP hewed to the long term in focusing on deepwater tracts in the western gulf's Port Isabel area.

"We're very interested in the gulf's deepwater prospects," BP's Hugh Depland said. "For us, working in deep water is a long term strategy, and you can't base a long term strategy on current gas prices."

Hall-Houston Chairman Gary Hall said the high interest in Mustang Island 783 was indicative of the tract's prospectivity.

"We had some definite ideas about Block 783, and we sure were pleased to get it," Hall said. "It's in a trend that's very hot right now. We liked it because it's in the same trend, on the same fault, and has the same look as a discovery we made with ARCO.

"We think it could be similar, and we look forward to drilling it in first quarter 1994."

Similarly, Amerada Hess in Sale 143 acquired Garden Banks Blocks 216 and 172, contiguous with a discovery with Oryx announced in January 1992 in about 1,700 ft of water on Garden Banks Block 260.

Amerada's Carl Tursi said the company has maintained a high rate of leasing in recent gulf sales because it considers the gulf a focus of its U.S. upstream activity.

"Also, we like the future of the gas business in the U.S.," he said.

Enron's Hardie Davis said higher U.S. wellhead gas prices alone boosted participation in Sale 143.

"Now that the price is above $2/Mcf, offshore gas becomes more economic," Davis said.

But Oryx's Dick Standaert said concerns MMS might restrict or delay federal leasing also affected bidding.

"As a result, we saw more companies going 100% on blocks, a lot of very small independents making significant bids, and bidding totals a little more than double what they were last year," Standaert said.

Access to federal acreage is critical to U.S. companies working offshore.

"If we don't have access to the OCS or leasing is delayed in some way, we basically can't continue our business," Standaert said.

MMS Director Fry said the agency's main goal is to ensure taxpayers and the federal government receive fair value for federal OCS resources.

"We're not trying to do anything to limit competition or to favor one portion of the industry to the exclusion of another, and I'm not suggesting there's going to be a change," Fry said, "We just want to make sure when we have future sales, we do it right."