David Paganie - Houston
Lease sale bidding falls
Bidding activity at the latest Gulf of Mexico lease sale, Central Sale 208, was down substantially, likely due to adverse economic conditions for some companies and uncertainty over future US tax policies. In February, the Obama administration released its proposed FY 2010 budget, which included a number of provisions that would raise more than $30 billion in new revenue from the oil and gas industry. The one proposed provision that is causing considerable anxiety in the industry is the repeal of expensing intangible drilling costs. This could generate up to $3.3 billion, according to the Office of Management and Budget. Raymond James suggests that many E&P budgets likely would get cut by as much as 25-30% if this were to pass.
Meanwhile, on March 18, MMS held its central area lease sale. It included a 14% increase in total acres and blocks offered over last year’s central lease sale.
However, compared to last year’s central lease sale results, the total number of bids fell about 55% to 476 from 70 participating companies, total money exposed declined 84% to $934 million, and the sum of high bids – $703 million – is more than the 2006 level of $588 million, but well below the $3.68 and $2.90 billion levels reached in 2008 and 2007.
The highest bid on a block was $65.6 million by Shell for Mississippi Canyon block 721, which was well below last year’s high bid of $105.6 million on Green Canyon block 432 by a consortium of Anadarko, Murphy, and Samson. Shell recorded the highest total number of high bids (39) and sum of high bids ($153.6 million).
The top companies with the highest number of bids and money exposed consisted of the usual suspects, with the exception of Ecopetrol America Inc. The Columbia-based company is branching out to the US GoM as part of its internationalization strategy to reach 1 MMboe/d in 2015. The company was the apparent high bidder on 26 blocks with $20.6 million exposed, ranking it 10th in the Top 10 companies based on the sum of high bids. Of the 26 blocks, the company bid alone for 15, and participated jointly with Repsol E&P USA Inc. on the remaining 11 blocks, with shares ranging between 40% and 60%.
Meanwhile, the total number of deepwater blocks (400-2,000+ m [1,312-6,562+ ft]) bid on in the central lease sale fell 41% from 2008 levels, but still accounted for approximately 70% of all blocks bid on. The number of blocks bid on in shallow water (0-399 m [0-1,309 ft]) declined 49%.
According to US Secretary of the Interior Ken Salazar: “The lease sale will help us make a wise addition to our nation’s energy supply. The responsible energy development resulting from the sale will be a part of our nation’s comprehensive energy plan, which will include a renewed emphasis on conservation and an aggressive effort to develop our renewable energy resources, so we can move our nation toward energy independence.”
A total of 13 tracts in the 181 South Area, 4.2 million acres which had not been offered for lease since 1988, were bid on. The sum of high bids generated $6.5 million. Alabama, Mississippi, Louisiana, and Texas will share in 37.5% of the high bids as well as all future revenues generated from the acreage leased in this area. In addition, 12.5% of the revenues will go to the land and water conservation fund.
Meanwhile, designated Gulf Coast states and communities were expected to collect first payments under the 2006 Gulf of Mexico Energy Security Act (GOMESA), which provides that these states and counties receive 37.5% of the oil and gas qualified leasing revenues from certain outer continental shelf areas. More than $25 million in bonuses were to be dispersed from lease sales 224 and 206 held on March 19, 2008, and from Lease Sale 205 held on Oct. 3, 2007. The revenues include $6,179,076.25 to the state of Alabama; $6,347,321.13 to Louisiana; $5,506,235.80 to Mississippi; and $2,159,399.65 to Texas. In total, the lease sales generated about $67.3 million in bonus bids and first-year rentals that qualify for revenue sharing.
The 2006 legislation mandates that eligible US jurisdictions on the Gulf Coast within 200 mi (322 km) of certain OCS parcels leased in sales 224, 206, and 205 receive these 37.5% share payments. The law directs that the funds be used for coastal protection, including mitigating damage to fish, wildlife or natural resources; carrying out a federally approved marine, coastal, or comprehensive conservation management plan; mitigating the impact of OCS activities through the funding of onshore infrastructure projects; as well as planning assistance and administrative costs in complying with the law.
The next GoM lease sale, Western Sale 210, is proposed to include 18 million acres of 3,400 unleased blocks in the Western Planning Area. It is scheduled be held in New Orleans on Aug. 19.
Fewer US landfalls predicted for this year’s hurricane season
AccuWeather.com Chief Long-Range and Hurricane Forecaster Joe Bastardi has released an early hurricane season forecast for 2009 which predicts fewer landfalls in the US as well as a lower overall number of named storms. However, storms may be more likely to form in the Atlantic basin closer to the coast and the possibility of a major hurricane making landfall in the US cannot be ruled out, Bastardi says.
“Early indications show a reduction in the overall number of named storms and of major hurricanes in the Atlantic basin compared to last year, but the number of storms should still be near or a little above normal,” he says.
Bastardi points to several factors influencing the forecast:
- The weak La Niña in the Pacific Ocean will dissipate. A reverse to a weak El Niño, which is associated with decreased hurricane activity in the Atlantic, is most likely in the middle to latter part of the hurricane season
- The expected orientation of high pressure in the eastern Atlantic will produce stronger easterly trade winds across northern Africa than last year. This will result in increased dust and dry air being pushed westward into the Atlantic where many tropical storms originate
- Cooler water temperatures in the deep tropical Atlantic, a typical breeding ground for hurricanes, which can reduce hurricane activity and intensity. This may create a season in which storms are reaching a greater intensity further north and east than last year, leading to less impact in the Caribbean areas hit hard last year
- A continuing multi-decadal pattern of higher-than-average water temperatures in the Atlantic, raising the chance of major storms near the East Coast until about 2020.
