Potential operators bid on less than 1% of the offshore blocks offered for auction in the federal Gulf of Mexico (GOM) Lease Sale 251 completed on Wednesday, but while muted, total high bids eclipsed offers in the March sale.
The Department of Interior’s Bureau of Ocean Energy Management (BOEM) offered for oil and gas development more than 78 million acres in federal waters, shallow and deep, offshore Alabama, Florida, Louisiana, Mississippi and Texas. The region-wide Outer Continental Shelf auction webcast from New Orleans offered operators the opportunity to bid on tracts that cover almost the entire U.S. GOM.
"I look at it as a positive sale," said BOEM’s Mike Celata, GOM regional director, during a conference call with journalists to discuss the results. There was “increased competition from last sale that may have resulted in some high bids. Overall, we still see the Gulf of Mexico as a very viable place…”
Some Big Oil operators that previously have been active participants in the offshore auctions showed less interest this time around, but they could be keeping their powder dry for more attractive leases due to expire in the next year.
Twenty-nine exploration and production companies participated, with total high bids climbing to $178 million from $124.8 million proffered in March, a lease sale that saw 33 operators participate. Total bids reached $202.67 million.
Of the 14,575 blocks offered across the GOM, 144 received bids. The total number of bids was 171.
Hess Corp. was high bidder, with an offer of almost $25.92 million for a deepwater prospect in Mississippi Canyon (MC) block 338. By comparison, the highest bid in the March sale was about $7.07 million by a unit of Total SA.
Green Canyon (GC) block 437 in deepwater received four bids in the lease sale, the highest number of offers; MC block 338 received two bids.
"This lease sale is a barometer and a step in the recovering health of the offshore oil and gas industry," said National Ocean Industries Association’s Tim Charters, vice president of governmental and political affairs. "While the recovery is neither uniform nor universal, efficiency improvements in the last few years are starting to bear fruit and some offshore sectors are showing profits, although the margins are slim.”
Interior reduced the royalty rate for shallow water blocks to 12.5% from 18.75% beginning with the March lease sale. A recommendation in February by Interior’s Royalty Policy Committee to reduce the deepwater royalty rate also to 12.5% has not been given a green light by the Trump administration, which Charters said has reduced enthusiasm.
"Unfortunately, the administration's decision to not lower future deepwater royalty rates to match shallow water and onshore royalty rates does nothing to hasten overall recovery,” Charters said.
Royalty rates high or low, the action was in the deepwater, where 55 bids were made for tracts in waters below 1,600 meters. There also were 43 for blocks in 800-1,600 meters and 13 for blocks in waters 400-800 meters. One bid was made for a block in water 200-400 meters deep.
Shallow water prospects in water up to 200 meters brought in offers by 32 companies.
The top 10 bidders, all for deepwater blocks, were in order ExxonMobil Corp., 25 bids totaling $40.55 million; BP Exploration & Production Inc., 19 bids, $12.57 million; Hess, 16 bids, $36.18 million; Equinor Gulf of Mexico LLC, 16 bids, $13.22 million; Talos Energy Offshore LLC, 14 bids, $5.27 million; Deep Gulf Energy III LLC, seven bids, $5.53 million; Houston Energy LP, seven bids, $1.42 million; W&T Offshore Inc., six bids; $825,750; Chevron U.S.A. Inc., five bids, $18.71 million; and Anadarko US Offshore LLC, five bids, $12.48 million.
All of the high bids, including by Hess, were for deepwater prospects.
After Hess, the blocks drawing the highest bids were by Chevron, MC 743, $11.12 million; ExxonMobil, De Soto Canyon (DC) 939, $8.50 million; ExxonMobil, DC 983, $7.50 million; Walter Oil & Gas Corp., MC 617, $5.21 million; Shell, MC 978, $4.60 million; Anadarko, GC 473, $3.89 million; Anadarko, Walker Ridge 925, $3.60 million; Chevron, Garden Banks (GB) 957, $3.33 million; and Total E&P USA Inc., GB 872, $3.25 million.
The next BOEM auction for the GOM tentatively is slated for next March.