Sizzling gulf sale defies oil price woes

• Top 10 tracts [74,769 bytes]

Once again, oil companies have bid heavily for deepwater tracts in a central Gulf of Mexico offshore lease sale-despite the prospect of $12/bbl oil.

At Sale 169, held last week in New Orleans, 75 operators submitted apparent high bids of $810,421,404 for 794 blocks. Nearly 68% of the bids were for blocks in more than 800 m of water. Minerals Management Service said 87 operators submitted a total of 1,188 bids, exposing $1,349,676,391.

Conoco Inc. was the most active, with high bids on 122 tracts totaling $48.7 million. It was followed closely by Shell Deepwater Development Inc. (SDDI) with 119 tracts for $46.9 million and Mobil Oil Exploration & Production Southeast with 118 tracts for $62.8 million.

The top bid was $28,005,120 for Green Canyon Block 955. Sun Operating Ltd. Partnership and Statoil Exploration (U.S.) Inc. submitted the highest of 11 offers for that tract. The block receiving the most bids, 13, was Mississippi Canyon Block 348.

Deep water

Sale 169 offered 4,244 blocks 3-300 miles off Louisiana, Mississippi, and Alabama. Operators submitted 201 apparent high bids totaling $162.9 million for 201 tracts in up to 200 m of water. Operators bid $23.8 million for 24 tracts in 200-400 m of water and $57.9 million for 30 blocks in 400-800 m.

But the focus of the sale was on deep water. Operators exposed $1,044,993,608 to get 539 blocks in more than 800 m of water, and their high bids totaled $565 million. The sale offered 3,428 blocks, in 200-3,400 m of water, which may be eligible for royalty relief.

Analysts said oil companies were undaunted by low oil prices, largely because of the 1995 Deepwater Royalty Relief Act. That law reduces federal royalties for deepwater fields that prove to be marginally economic.

The $810 million in high bids compare with $812 million that operators paid (after MMS rejected some high bids) for 1,004 leases in the central gulf sale last spring (OGJ, Mar. 17, 1997, p. 34). Last fall, operators paid $600 million for 778 tracts in a western gulf sale (OGJ, Sept. 8, 1997, p. 36).

Reactions

National Ocean Industries Association Pres. Robert Stewart said, "The sale was a loud expression of optimism by the industry on a number of fronts. They're optimistic that the current dip in oil prices is temporary, the tightness in the rig market and personnel market will be addressed successfully over time, and technology will enable industry to meet the challenge of working in deep water."

SDDI Prospect Development Manager Steve Sears said, "We continue to see a lot of opportunity in the mid- range water depths of the deepwater Gulf of Mexico, and we're very pleased with our success there. Additionally, we and our partner, Conoco, saw a new opportunity in the bathyal Gulf of Mexico, in the water depths greater than 6,000 ft. Our plans are to continue our geological and geophysical evaluation in all of these areas."

Kerr-McGee Oil & Gas Corp. and its partners were apparent high bidders on 19 blocks. Luke Corbett, chairman and CEO, said, "These blocks support our exploration strategy of balancing fast-track production opportunities on the continental shelf with longer-term exploration oppportunities on blocks in deeper water."

Oryx Energy Co. was the apparent winner of 18 deepwater tracts. Jerry Box, president and COO, said, "We saw this as an excellent opportunity to capture some of the remaining high-potential blocks."

Pogo Producing Co. and partners apparently won three of the eight tracts on which they bid. The total of bonuses on the blocks was $929,976, of which Pogo share was $459,744.

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