Bruce Beaubouef Houston
Lease Sale 250 yields more than $124 million in high bids
The Bureau of Ocean Energy Management has reported that Lease Sale 250 garnered $124,763,581 in high bids for 148 tracts covering 815,403 acres in the Gulf of Mexico’s Western, Central, and Eastern planning areas. Thirty-three companies submitted 159 bids that totaled $139,122,383. Lease Sale 250 included 14,474 unleased blocks, located from 3 to 231 mi (5 to 372 km) offshore in water depths ranging from 9 to more than 11,115 ft (3 to 3,400 m).
BP Exploration & Production Inc. submitted 27 high bids totaling $20,068,202. Its highest bid, $2,900,526, was for the ultra-deepwater Mississippi Canyon block 564.
Chevron U.S.A. Inc. submitted 24 high bids totaling $29,448,882. Its highest bid, $4,240,226, was for the ultra-deepwater Mississippi Canyon block 740.
Shell Offshore Inc. submitted 16 high bids totaling $22,931,808. Its highest bid, $6,501,988, was for the deepwater Alaminos Canyon block 259.
Total E&P USA Inc. submitted nine high bids totaling $15,106,525. Its and the sale’s highest bid, $7,000,728, was for the ultra-deepwater Mississippi Canyon block 697.
Other notable results included:
• Hess Corp. submitted seven high bids totaling $4,524,223.
• Byron Energy Inc. submitted seven high bids totaling $2,610,082.
• Arena Energy, LP submitted seven high bids totaling $1,209,926.
• SDB Offshore Energy, LLC submitted seven high bids totaling $1,048,320.
• W&T Offshore Inc. submitted seven high bids totaling $797,700.
• EnVen Energy Ventures submitted five high bids totaling $4,662,153.
• BHP Billiton Petroleum (Deepwater) Inc. submitted three high bids totaling $5,282,860. Its highest bid, $4,130,860 was for Green Canyon block 823.
• LLOG Exploration Offshore, L.L.C. submitted two high bids totaling $4,620,222. Its highest bid, $4,133,333, was for Mississippi Canyon block 509.
• Statoil Gulf of Mexico LLC submitted five high bids totaling $4,030,280.
National Ocean Industries Association President Randall Luthi said the results reflect slowly improving market conditions.
“While the bidding activity today reflects improving, yet still lower than desired commodity prices,” he said, “both the number of bids submitted and the total amount of high bids received are up compared to the August 2017 sale figures.”
As Shell finishes construction on its Appomattox semisubmersible platform hull, Bureau of Safety and Environmental Enforcement engineers and inspectors signed off on several topsides components during a recent pre-production inspection. Anthony Pizza, BSEE New Orleans District Production Operations Section Chief, said: “The Appomattox will be Shell’s largest floating platform in the Gulf of Mexico. The purpose of our inspection is to ensure the topsides are constructed as planned, meet industry and BSEE standards, and comply with federal regulations.” The bureau’s physical inspection involved 10 inspectors divided into two groups, each simultaneously inspecting different areas of the facility for three consecutive days. Each group concentrated on various processes, components, and equipment and the inspectors spent an average of 10.5 hours each day inspecting the facility. (Photo courtesy BSEE)
Luthi added: “Bonus bids are an indicator of the ability and confidence of producers to invest in the Gulf of Mexico. These are not new fields, and producers are attempting to pick the best of what is left. From that view, the bids demonstrate a solid commitment by the oil and natural gas industry to continue to invest in US offshore energy and US jobs. While the outlook is promising, it also comes with a note of caution that with companies looking globally for exploration opportunities, the United States must continue to evaluate how to keep the Gulf of Mexico and other parts of the US outer continental shelf attractive in light of competition from Brazil and Mexico.”
Commenting on the results of this latest lease round, William Turner, senior research analyst at Wood Mackenzie, said: “With about a 60% increase in acreage from August but relatively the same dollar amount and low competition, bidders got a bargain at today’s lease sale. Bidding activity focused on Mississippi Canyon where operators were likely drawn to its established infrastructure and lowest cost developments in the Gulf of Mexico. Operators are keen to keep the utilization up on the infrastructure and every new barrel produced through these facilities, further realizes value from the original investment.”
“The biggest surprise came from BP who bid on 20 Block in DeSoto Canyon just one ridge over from Mississippi Canyon,” Turner noted. “Given lack of hardly any exploration activity in the area, they could be chasing a new play opener.”
Shelf bidding increased this round as well, the possible impact of lowering the royalty rate last year finally kicking in. However, fiscal changes for deepwater, i.e. lowering the royalty rate from 18.75% to 12.5%, will help turn the low bidding around in the next lease round.
“Although we are in a climate where a lot of projects begin to make sense again in the Gulf of Mexico, operators appear to still be in a ‘wait and see’ mentality when it comes to exploration, looking for stability in oil prices,” Turner said. “Meanwhile some patient but dedicated operators are on the brink of cracking the code on ultra-high-pressure developments. Once the industry sees some proven developments in fields like Anchor, others will follow suit and we will begin to see the return of significant volumes being discovered and developed in the region.”
Some reports were more critical of the lease sale results. A Reuters report noted that “companies facing multi-billion dollar price tags to develop the acreage and tempted by better terms overseas bid on just one percent of the area up for grabs, winning with bids that averaged just $153 per acre – 35% below levels last year, and a fraction of those in the region in 2013 when oil prices were higher.” The report also noted that while the lease sale yielded $124.76 million in winning bids, slightly more than a smaller Gulf of Mexico auction last year, that was only a tenth of the amount pulled in during a much smaller lease sale in the Central Gulf in 2013.
A Wall Street Journal report deemed the sale “another bust.” Its author noted that “there was little competition for the leases.” According to this report, the average number of bids per block was just 1.07, with most of the action in ultra-deepwater blocks (53 bids) and shallow-water blocks (43 bids). The highest number of bids for any block was three. Total won that one with a bid of just over $7 million ($1,341 per acre). The average price per acre was around $153.00.
