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Gulf Deepwater Attracts Most Interest in MMS Sale

The U.S. affiliate of Norway's StatoilHydro topped all bidders in the Minerals Management Service (MMS) Gulf of Mexico (GOM) lease sale in August, with a $61.110 million offer for the opportunity to explore a block deep beneath the ocean floor about 160 miles south of Galveston, TX, in Alaminos Canyon.

MMS reported that bidders in the Western Planning Area (WPA) of the Gulf of Mexico (GOM) offered more than twice the amount of money than in the WPA auction a year ago. Results of the WPA GOM Lease Sale 207 were unveiled Aug. 20 in New Orleans.

In all, 47 producers made 423 bids totaling $607.135 million on 319 tracts covering around 1.8 million acres. High bids totaled $487.297 million. The blocks auctioned are located from nine to about 250 miles offshore Texas and Louisiana in water depths of 16 feet to more than 10,978 feet. Blocks capturing the highest bids were in the Alaminos Canyon, Garden Banks and Keathley Canyon areas.

The lease sale last month was the first since President Bush lifted the executive ban on OCS leasing (see NGI, Aug. 4). Interior Department Secretary Dirk Kempthorne, who was in New Orleans to announce the results, pointed out that even with the attention drawn to the lease sale, it will take a lot of time and money to produce the new supplies of oil and gas.

"Even after a company invests up to a billion dollars or more in a lease during pre-production activities and spends several years engaged in multiple inspections, reviews and strict government oversight, there's a very real possibility that no amount of oil or natural gas will be found or produced," Kempthorne noted. "No one can tell us how many leases actually will result in energy unless they have the proverbial crystal ball."

Still, the interest in the sale, especially with the number of high bids by some of the world's largest producers and biggest domestic independents, is a good sign, he said.

"In just the five months since we had our previous lease sale in March, a lot has happened in our domestic energy front, but a lot more needs to be done," Kempthorne said. "When you combine what we have in this lease sale with...other sales we've had this year...it's around $9.5 billion in lease bids, and that shows you real dynamic opportunities."

MMS earlier had estimated that the WPA lease sale Wednesday could result in the production of 1.64-2.64 Tcf of gas and 242-423 million bbl of oil. Kempthorne pointed out that as technology has evolved, there could be a lot more oil and gas than previously estimated.

"Our role is to make accessible resources needed for the country's energy security," he said.

Obtaining leases in the Alaminos Canyon and Garden Banks area apparently was high on a lot of producers' wish lists.

Chevron U.S.A. Inc., already the largest leaseholder in the GOM, submitted four of the top bids in the latest sale. Chevron bid $52.108 million and $34.608 million for leases in the Garden Banks deepwater, and it bid $20.121 million for a block in the Alaminos Canyon. It also captured another bid with a $5.608 million offer.

The fourth-highest bid of $22.332 million -- also in the Alaminos Canyon -- was won by StatoilHydro as well. Shell Gulf of Mexico Inc. had the next highest bid in an $11.999 million offer for another Alaminos Canyon block. Other top bidders were Eni Petroleum US LLC, $8.103 million; LLOG Exploration Offshore Inc., $8.012 million and $6.012 million; ConocoPhillips, $6.2 million; and Apex Oil & Gas Inc., $5.352 million.

Based on the number of total high bids, ExxonMobil Corp. led the way with 130 bids that totaled $127.33 million. The other top 10 bidders were Hess Corp., 22 bids, $14.16 million; Chevron, 20 bids, $127.28 million; Devon Energy Production Co. LP, 20 bids, $6.67 million; Anadarko E&P Co. LP, 19 bids, $14.81 million; Shell, 15 bids, $20.2 million; Focus Exploration LLC, 14 bids, $3.94 million; LLOG, 11 bids, $23.17 million; Total E&P USA Inc., six bids, $3.19 million; and BP Exploration & Production Inc., six bids, $2.84 million.

MMS estimated that in total, bids in the latest sale were made on about 10% of the 3,412 blocks available. About 80% were in blocks with water depths of 1,000 feet or deeper.

"What's left to look at is deepwater," said MMS Director Randall Luthi. "That's been the trend over the last few years. Basically, what's left is you've got to go deeper, you've got to go out further, you've got to go to places that haven't been explored," he said, repeating some comments he made at the Offshore Technology Conference in May (see NGI, May 12).

Assistant Interior Secretary Stephen Allred, also on hand for the auction, said a government analysis of all the tracts in the lease sale that generated bids found they are likely to have oil and gas. However, he added, "You can't assume that every lease that everybody has is going to produce oil."

The bids were high, but they didn't surpass the all-time record set earlier this year in the Central GOM Lease Sale 206, when high bids received totaled nearly $3.68 billion (see NGI, March 24). Producers in that sale offered more than $5.74 billion in total bids.

StatoilHydro, which has been building its portfolio in the GOM (see NGI, March 10), spent $136 million on 36 deepwater GOM blocks in the previous WPA lease sale in 2007. Historically the Western GOM lease sales have not drawn the same level of interest from producers as in the Central GOM. The Western GOM Lease Sale 204, which was conducted in August 2007, resulted in high bids valued at more than $287 million (see NGI, Dec. 10, 2007). MMS awarded 274 leases in that sale.

For results of the latest GOM sale, visit www.mms.gov.

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