Jennifer E. Smith
Houston
Independents hold forth in weak sale amidst many undrilled leases
The US Minerals Management Service's Central Gulf of Mexico sale 172 in March received 272 bids on 207 tracts offered in the Central Gulf of Mexico. Of the 207 tracts, only 17 had high bids by large operators. The rest were independents.Sixty-seven companies participated in the sale, which offered 3,758 blocks covering 20 million acres in all. The sum of high bids for the sale equaled about $171.6 million, with total amount exposed about $199.6 million.
In comparison, the last lease sale, Western Gulf Sale 171 in August 1998, garnered 486 bids on 402 tracts, of a total of 3,778 blocks available. Fifty-two companies participated in the sale, risking a total of $1.3 billion. High bid total was $553.4 million. The GOM sale before that, Central Gulf Sale 161 in March 1998, reached record proportions with 1,188 bids on 794 blocks of a total 4,180 available in the sale. Seventy-five companies participated in the sale, risking $1.3 billion. High bid total was $616.2 million.
Despite the unimpressive turnout, MMS spokesman Barney Congdon said he was pleasantly surprised. Congdon said lots of mergers, shutdowns, and relocations show the current state of the industry, which is more likely to develop what it has - or sell it - than to acquire more assets in this rather precarious time of low oil prices.
There are a large number of undrilled leases in the Gulf of Mexico already (see sales table). Congdon said perhaps it's hard to convince the budget-makers to spend even more on acquisitions when there are so many undrilled leases.
The spokesman said this was the fourth smallest sale in terms of number of bids.
He noted that not as many majors participated as they have tended to recently.
During record-breaking Central Gulf Sale 161 a year ago, the general consensus of bidders seemed to be that the low price of oil (WTI then traded for $14.33, not far off from the price in early March before price-boosting cut agreements were made) was a temporary aberration that would pass. Companies were thinking in the long-term. Now company managers might be thinking about their own jobs, bringing the amount they are likely to spend on new acquisitions way down.
Of the bids that were made, it surprised no one that the 800 meter plus water depth category garnered the most money bid. $147.9 million of the total $171.6 million exposed - 86% - was in that category. The 0-200 meter water depth category, on the other hand, received noticeably more bids (105) than the 800 meter plus category (89), but deeper water is definitely where the money is going (See water depth table).
MMS alters price forecast, waiting period
The US Minerals Management Service announced two moves it has made to help the industry adjust to and survive low prices. It lowered price forecasts to be used by existing leaseholders to apply for deepwater royalty relief, and shortened the time period before which leaseholders may apply for deepwater royalty relief and end-of life royalty relief. The second resolve will ease the number of early abandonments.Under the new price forecasts, which MMS intends to better reflect current prices, it will be easier for a development to qualify for royalty suspension because the MMS will assume that the development will make less money than the MMS would otherwise have estimated. The shortening of the waiting period will hopefully make it more likely that companies will continue production from a field, rather than abandon the field in this time of low returns. A statement said: "Under the formal process for instance, a lessee who has invested significant resources to lower production costs would be required to wait at least a year before applying for end-of-life royalty relief. Under the new approach, a lessee who has made a commitment of capital and meets additional criteria would be able to apply immediately during this period of low oil prices."
US Gulf pipelines change owners
Houston-based pipeline company MidCoast Energy agreed to purchase a 70% interest in SeaCrest for $2 million. SeaCrest recently acquired interests in eight offshore natural gas gathering pipelines in the Gulf of Mexico. The systems comprise 87 miles of 6-in. to 16-in. pipe.They gather gas from 23 offshore producing wells south of Louisiana, with a current total throughput of 50 MMcf/d. The pipelines are called High Island A-68, High Island A-389, High Island A-523, Vermilion 221, Ship Shoal 263, Ewing Bank 482, West Cameron 538, and South Marsh Island 155. MidCoast also purchased the Tinsley system in Yazoo County, Mississippi, for $6 million.
Partnership to develop 55 leases
Houston Exploration and KeySpan Exploration & Production agreed to establish a joint venture drilling program to explore and develop 55 undeveloped Gulf of Mexico leases. The companies plan to take advantage of the current lower operating cost environment. Houston Exploration owns 100% of most of these leases. Under the agreement, KeySpan will purchase 45% of Houston Exploration's working interest in these leases and will provide up to $100 million a year for three years to cover the leases, exploration drilling, development drilling, and platform and facility construction. The agreement has an effective date of Jan. 1, 1999.Houston Exploration will serve as operator for all activities, and operating costs will be shared on a working interest basis. At the end of the program, any remaining undeveloped leases will be reassigned to Houston Exploration. Developed leases will be owned on a working interest basis. KeySpan Energy, owner of KeySpan Exploration & Production, holds 64% equity ownership in Houston Exploration.
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