Independents and deep water rule Western Gulf of Mexico lease sale

The US federal sale of oil and natural gas leases in the western Gulf of Mexico drew $165.6 million in high bids for 320 tracts Wednesday, with independent producers providing most of the action and the deep waters in the Garden Banks area stimulating the most competition and top offers.

HOUSTON, Aug. 22 -- Independent producers and deep waters dominated Wednesday's sale of US federal oil and natural gas leases in the western Gulf of Mexico, which drew $165.6 million in high bids for 320 tracts.

The 386 bids submitted by 50 participating companies totaled nearly $190 million, officials reported. It was the fourth largest federal lease sale in a decade, in terms of the number of leases that drew bids.

"This sale saw spirited bidding activity by the independent oil and gas companies. The top three companies in submitting bids were independents: Kerr-McGee Oil & Gas Corp. (55 bids), Spinnaker Exploration Co. (35 bids), and Amerada Hess Corp. (31 bids)," said Tom Kitsos, acting director for the Minerals Management Service (MMS) which conducted the lease sale in New Orleans.

Kerr-McGee was the biggest spender at the sale, submitting 55 bids totaling $37.5 million, including 41 apparently successful high bids totaling $32 million.

"These new leases complement our existing prospect inventory in the deepwater gulf and fit our strategy to build core operating areas within high-potential trends," said Luke R. Corbett, Kerr-McGee chairman and chief executive officer. "We will operate 90% of these high-bid blocks with an average working interest of about 80%, allowing us to continue to enhance our successful exploration and development program."

Kerr-McGee is the largest independent leaseholder in the Gulf of Mexico, as well as in its deep waters. If awarded those additional blocks, Kerr-McGee will hold interests in 377 deepwater blocks in the Gulf of Mexico and will operate more than 75% of those leases with an average working interest of 51%.

The stiffest competition and the highest bids were for blocks in the deep waters in the Garden Banks area out to 800 m water depth, MMS officials reported.

The highest single bid was $8.3 million for Garden Banks Block 245, submitted jointly by Kerr-McGee, Amerada Hess Corp., and Petrobras America Inc. There was no other offer for that block.

The second highest bid was $6.3 million by Shell Oil Co. for Garden Banks 390, one of the four blocks drawing the most bids during the sale. Although three other bids were submitted for that block, the next highest was only $516,000, said officials at Andersen -- formerly Arthur Andersen Inc. -- in their first internet webcast of a federal lease sale.

Other blocks drawing top bids included: Garden Banks 289, $5.6 million by Kerr McGee and Ocean Energy Inc.; Garden Banks 399, $4.6 million, Kerr McGee; and Garden Banks 444, $4.3 million, Kerr McGee.

Garden Banks Blocks 204 and 205 generated the most competition with six bids each. Westport Resources Corp. was the top bidder for Garden Banks 204 at $1.1 million, beating out the closest competing bid of $750,000 by LLOG Exploration Offshore Inc.

However, LLOG Exploration submitted the high bid of $2.1 million for Garden Banks 205, fending off a joint offer of $1.3 million by Noble Affiliates Inc. and Walter Oil & Gas Corp. and a $1.2 million bid by Newfield Exploration Co.

MMS officials reported bids for some blocks in the extremely deep waters of the so-called "Western gap," an area delineated by a new US-Mexico boundary agreement. However, no bids were submitted for the 53 "gap" tracts held over from the central gulf lease sale in March (OGJ, Apr. 9, 2001, p. 36).

"We also saw some bidding that was in response to our deep gas initiative in shallow water," Kitsos said. As in the earlier central gulf lease sale, the federal government is offering a royalty suspension on the first 20 bcf of gas production from below 15,000 ft subsea on those western gulf leases.

MMS officials will now evaluate the high bids on each block to ensure the public receives fair market value before a lease is awarded.

Contact Sam Fletcher at

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