Next gulf lease sale likely to be canceled, analyst suspects
Sam Fletcher
OGJ Senior Writer
HOUSTON, Nov. 10 -- Gulf of Mexico Lease Sale 216, slated for March 2011, likely will be canceled because of US Bureau of Ocean Energy Management, Regulation, and Enforcement’s commitment to preparing supplemental environmental reviews before any future lease sales, said analysts at FBR Capital Markets & Co., Arlington, Va.
“Moreover, the agency faces significant workload on other offshore regulation including permitting and public comment period requirements,” they said.
Although government officials haven’t yet indicated plans to halt the March sale, Interior Sec. Ken Salazar in May canceled the August gulf lease sale and a proposed 2012 lease sale off Virginia after the Macondo well blew out Apr. 20 in the deepwater gulf.
“Prudence dictates that we pause and examine our drilling systems thoroughly,” Salazar said at the time as he imposed a 6-month moratorium on deepwater drilling and suspended exploratory drilling in the Arctic.
The well was finally capped July 15 after causing the biggest oil spill ever in US waters. Salazar lifted the deepwater drilling moratorium shortly before its scheduled Nov. 30 expiration, but there has been no meaningful increase in drilling in the gulf because of the government’s slow pace in issuing drilling permits even in shallow waters.
If the March lease sale is canceled, FBR analysts said marine seismic companies likely would lose revenue from multi-client sales in the gulf. “E&P companies would reduce their purchases of geographical surveys in the first quarter if they do not have an immediate opportunity to explore new prospective production zones in subsequent quarters. If Lease Sale 216 does not proceed as currently scheduled, Schlumberger Ltd., Petroleum Geo-Services ASA, and CGG Veritas all stand to lose revenue as a result.”
They estimated the various seismic companies derive 2-18% of their quarterly revenue from multi-client sales of gulf data, amounting to several million dollars. Additionally, they said the companies often do marine seismic surveys for their own libraries in addition to their contracted surveys. Exploration and production companies purchase that data ahead of lease sales in order to make informed decisions in bidding for leases.
However, FBR analysts said, “We do not believe there would be a negative impact to oil service or drilling operations from the delay or cancellation of the March lease sale, since actual drilling and development operations usually occur several years after a respective lease sale.”
On the other hand, lengthy disruptions in exploration and development of additional oil and gas resources as current production is depleted has in the past created supply shortages that have driven up the cost of gasoline and other petroleum products to the average consumer. Once a gap develops between new discoveries and current production, it takes time for the industry to catch up with the market.
Contact Sam Fletcher at [email protected].