Interest high for Gulf of Mexico lease sale
The Mar. 18 central Gulf of Mexico offshore lease sale promises to be another strong one, industry observers say.
They predict operators will aggressively seek more leases at the New Orleans sale, despite the facts that many companies have a full inventory of offshore tracts to drill, some of them are having difficulty getting deepwater rigs (OGJ, Sept. 22, 1997, p. 56), and oil prices are continuing to fall.
The upcoming sale
Sale 169 will offer 4,244 blocks 3-300 miles off Louisiana, Mississippi, and Alabama.The U.S. Minerals Management Service said 868 blocks are in less than 400 m of water and carry 5-year lease terms and 12.5% royalties.
Carrying a 162/3% royalty are 116 blocks in 400-800 m of water offered for 8-year terms, and 3,242 blocks in more than 800 m offered for 10-year terms.
A year ago, oil companies paid $812 million in bonuses for 1,004 leases in the central Gulf of Mexico. Last fall, they paid $600 million for 778 tracts in a western Gulf sale (OGJ, Mar. 17, 1997, p. 34; Sept. 8, 1997, p. 36).
In those and two prior sales, most of the interest was focused on deepwater tracts. That largely was because a 1995 law made marginally economic fields in deep water eligible for federal royalty relief.
In the upcoming sale, 3,428 of the 4,344 tracts are in 200-3,400 m of water and are eligible for royalty relief.
Strong interest
For competitive reasons, oil companies declined to comment on their interest in next week's sale.Barney Congdon, an MMS spokes- man, said his agency's conversations with exploration firms lead MMS to believe the sale will be another robust one.
"We haven't heard anyone say they plan to pull their exploration dollars off the table. And we've seen absolutely no indication that companies are bothered by the drop in oil prices. The royalty relief law makes a big difference when they consider price projections."
Congdon said the true bellwether won't come until the day before the sale, when MMS announces the number of bids it has received.
But he said MMS has sent out more sale packages than normal to companies interested in bidding.
"We've given out 235 packets, compared with 229 at the same time before the sale a year ago. That's not a true indicator, but it hints that the companies are even more interested in the sale than they were last year."
Jerry Peterson, sales manager for Western Geophysical Co., Houston, said his firm has a large library of geophysical data for the central Gulf.
"Based on our sales (of seismic data), I think it should be a good lease sale. Certainly, we don't ask our clients the specific reasons why they license our data, but our sales have been brisk."
Rigs lacking
Nizam Sharief, director of energy research for Hornsby & Co. Inc., Houston, said companies should not worry about the drop in oil prices."In the longer run, this price drop is a temporary fluctuation, and in 6 months or a year we will begin to get the oil market back in balance.
"Because of oil prices, you may not see the same exuberance at the sale as you did a year ago, but the sale certainly won't be a washout either."
Matt Simmons, president of Simmons & Co. International, Houston, was among the overflow crowd of a thousand people who watched MMS officials open bids last March. "I walked away thinking, 'there were a thousand people who don't know the industry is out of deepwater rigs.'
"The same thing happened at the western Gulf sale last August. I just don't think the oil and gas industry yet understands that we're not only out of rigs, we'll be out of rigs for a long time."
Simmons said 12 deepwater rigs are working in the Gulf, and the total may double by 2000. But he said industry will need 60 deepwater rigs "before we can get serious about exploring the deepwater Gulf of Mexico."
Simmons agreed that the drop in world oil prices should not be a deterrent "unless you think the drop is permanent."
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