Oil and natural gas prospects in the Gulf of Mexico (GOM) drew bids from 22 operators Wednesday in the latest federal lease sale, with deepwater blocks pulling the most interest.
Regionwide Lease Sale 254, livestreamed from New Orleans by the Interior Department’s Bureau of Ocean Energy Management (BOEM), offered 78 million acres that included 14,594 blocks in water depths of 3-34,000 meters across the Western Central and Eastern Planning Areas of the GOM.
“The development of oil and gas assets in the Gulf of Mexico is a highlight of the Outer Continental Shelf,” said BOEM’s Mike Celata, regional director of the GOM office. “The continued presence of large deposits of hydrocarbons in the region will draw the interest of industry for decades to come.”
However, whether it was the coronavirus or slumping oil prices, interest was not strong in the sixth sale under the 2017-2022 Outer Continental Shelf Oil and Gas Leasing Program as it has been in recent years.
Only 84 bids total were submitted for 71 blocks covering 397,300 acres. The sale generated $93 million in high bids, the lowest since the first region-wide sale conducted in 2017. In previous years, only portions of the GOM were leased in each auction.
In the most recent auction, Lease Sale 253 held last August, 27 operators submitted 165 bids total on 151 blocks. Combined high bids totaled $159.39 million.
The results from the sale “were always going to be an outlier considering the ongoing perfect storm of Covid-19 and oil price crash,” said Welligence Energy Analytics’ William Turner, vice president, U.S. GOM. “Bidding activity was down by roughly half across all metrics, but the amounts offered were in line with the five most recent sales, suggesting that long-term acreage valuations have not fundamentally changed (yet).”
Another GOM lease sale is scheduled for August, “before a potential change in the administration,” Turner said, “so perhaps it’s not unreasonable for some to remain on the sidelines during this sale and give things a chance to settle.”
BHP Billiton Petroleum (Deepwater) Inc. offered the highest bid at $11.11 million for deepwater Green Canyon (GC) Block 80 in waters 400-800 meters deep. Chevron U.S.A. Inc. was second highest bidder, with a $7.28 million offer for Mississippi Canyon Block 162 in waters 800-1,600 meters deep.
Shell Offshore Inc. at No. 3, offered $6 million for GC Block 193, while Chevron had the fourth highest bid at $5.41 million for Viosca Knoll Block 952 in waters 800-1,600 meters deep. The fifth highest bid was by BPH at $5.11 million for GC Block 123.
Based on the total number of high bids, the top company participating was BP Exploration & Production Inc. with 16 bids totaling $10.35 million followed by Chevron, 15 bids, $24.67 million; Shell at seven bids, $18.45 million; BHP, six bids, $19.99 million; and Equinor Gulf of Mexico LLC, five bids, $3.62 million.
At No. 6 in total high bids was Total E&P USA Inc. with five at $3.42 million, followed by Talos Energy Offshore LLC, four, $1.06 million; Juneau Oil & Gas Inc., four, $631,108; Houston Energy LP, three, $483,725; and EnVen Energy Ventures LLC, two, $3.97 million.
Forty-one of the bids were for blocks in water depths of 800-1,600 meters, with 12 bids in water depths of 1,600-plus meters. Nine bids were for blocks in water depths of 400-800 meters, with six in waters less than 200 meters deep. Another three were for blocks in water depths of 200-400 meters.
Revenue from the leases (including high bids, rental payments and royalty payments) are directed to the U.S. Treasury, as well as Alabama, Louisiana, Mississippi and Texas, along with local governments, the Land and Water Conservation Fund and the Historic Preservation Fund.
Leases resulting from the sale include stipulations to protect biologically sensitive resources, mitigate potential adverse effects on protected species and avoid potential conflicts associated with energy development in the region, BOEM noted.
In addition, fiscal terms take into account “market conditions and ensure taxpayers receive fair market value” from the offshore. There is a 12.5% royalty rate for leases in water depths of less than 200 meters and a royalty rate of 18.75% for all other leases.