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MMS Lease Sale 196 Brings $285 Million in High Bids, Hope of Increased Production

The U.S. Department of the Interior's Minerals Management Service (MMS) said last week that the Western Gulf of Mexico Oil and Gas Lease Sale 196 -- which was held Wednesday morning in New Orleans -- was "very strong," attracting over $285 million in high bids.

The MMS noted that 56 companies participated in the lease sale, which offered 3,762 tracts totaling 20.3 million acres offshore Texas and Louisiana. The government agency received 422 bids on 346 tracts. Bids totaled more than $335 million. Companies expressed strong interest in Lease Sale 196 as the industry attempts to jump-start the U.S.' stagnant production numbers.

"We saw the highest dollar amount of high bids for a Western Gulf Sale in seven years," said MMS Gulf of Mexico Regional Director Chris Oynes. Many of the areas bid on at this sale represent "rank wildcat" areas where industry is taking great geologic and economic risk to search for more oil and gas supplies.

"We continued to see strong bidding activity in the deepwater Gulf particularly in the Alaminos Canyon and Keathley Canyon Areas," explained Oynes. "This activity is due largely to the encouraging results of rank wildcat drilling activity in the Lower Tertiary-Wilcox Trend. It was also noteworthy that there was strong bidding interest in the shallow water area for potential deep gas prospects."

Of 224 deepwater tracts that received bids, 37 are in water depths from 400 to less than 800 meters; 101 are in water depths from 800 to less than 1,600 meters. In the ultra-deepwater categories of royalty relief, 26 tracts in water depths from 1,600 to 2,000 meters received bids and 60 tracts in water depths greater than 2,000 meters received bids. This new 2,000 meter category was established as a provision of the 2005 Energy Policy Act, signed into law on Aug. 8.

Breaking down the preliminary results from the sale, the MMS said 25% of the tracts receiving bids are in ultra-deep water (more than 1,600 meters). The deepest tract bid on is Sigsbee Escarpment 288, in 3,278 meters of water. The highest bid received on a block was $26.5 million, which was submitted by LLOG Exploration Offshore Inc. for High Island 156.

Petrobras America was the apparent high bidder on the most blocks with 53, followed by BP Exploration & Production (40), Shell Offshore (30), Anadarko Petroleum (20), Chevron U.S.A. (17) and Spinnaker Exploration Co. LLC and Kerr-McGee Oil & Gas tied (16).

The company with the highest total amount of high bids was LLOG Exploration Offshore. The company was high bidder on four blocks for a total $49 million, which included the $26.5 million for High Island 156.

Following LLOG for highest amount of high bids was Petrobras America ($30.1 M), Anadarko Petroleum ($28 M), ENI Petroleum Exploration ($23.4 M), BP Exploration & Production ($13.9 M) and Shell Offshore ($12.8 M).

Among the winning bidders, Kerr-McGee Oil & Gas Corp. and partners were high bidders on 16 deepwater leases in the sale. The company's net total exposure for all high bids is $4.5 million. If approved, Kerr-McGee said it will be designated operator of all of the high-bid leases, with an average working interest of 73%.

With the new leases, Kerr-McGee will hold interests in 571 leases in the deepwater Gulf of Mexico and will operate more than 76% of these leases with an average working interest of 57%. Award of the 16 high-bid leases would increase the company's total undeveloped lease holdings in the deepwater Gulf by 92,000 gross acres to nearly three million.

Houston-based Spinnaker Exploration Co. said it participated in 17 bids and was the apparent high bidder in 16 of those. Thirteen of the land pieces were in the deep water and three were on the shelf. Spinnaker's net exposure is $10.4 million. The company noted that its working interest averages 90% and the company will serve as operator on 15 of the 16 blocks. Spinnaker's high bids represent 92,160 gross acres and 82,940 acres net to Spinnaker. This would bring Spinnaker's holdings in the Gulf to 1,748,000 gross acres and 994,700 net acres, respectively.

Dallas, TX-based Remington Oil and Gas Corp. reported that it was the apparent high bidder on two offshore lease blocks. The company's net financial exposure, if both blocks are awarded, totals $1.6 million. Remington said it will operate both blocks. One of the blocks is on the shelf, and the other is in deeper water.

Contango Oil & Gas Co. said that Contango Offshore Exploration LLC (COE) was the apparent high bidder on two blocks in the sale for a total of $605,467. The Houston-based company listed the blocks as East Breaks 366 and 410. Contango owns 67% of COE. If these blocks are awarded, Contango will own interests, both directly and indirectly vis-a-vis its affiliates, in 51 federal lease blocks in the Gulf of Mexico.

New Orleans, LA-based Energy Partners Ltd. (EPL) was the high bidder on four blocks in the sale. The four blocks, North Padre A-28, Galveston 189, High Island A-306, and High Island A-315, are all on the Gulf of Mexico Shelf, in less than 500 feet of water, and EPL expects to be the operator of all the blocks. Together the blocks cover approximately 20,500 gross acres, or approximately 16,000 acres net to EPL's interest. EPL's share of the successful bids totals approximately $4.6 million. All of the high bids are subject to review by the Minerals Management Service before they are awarded.

Petrobras, a Brazilian international energy company, announced that its Petrobras America, subsidiary bid on 57 blocks in the lease sale and was the highest bidder for 53 blocks, totaling $ 30.1 million. Petrobras ensured 100% of participation and will be the operator on a set of blocks comprising eight prospects with high potential for oil and gas reserves, from which three are in the ultradeep waters, four in the western area of the Gulf and one in deep waters in the Garden Banks quadrant.

Petrobras America said it estimates investing near $150 million this year and, until 2010, approximately $1.7 billion, expecting a production over 100 thousand b/d in the beginning of the next decade.

The MMS assured that each high bid on a block will go through an evaluation process to ensure the public receives market value before a lease is awarded.

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ISSN © 2577-9877 | ISSN © 1532-1266
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