More aggressive bidding was just one of the themes that emerged during the record-breaking Minerals Management Service (MMS) Gulf of Mexico Lease Sale 206, according to consultant Wood Mackenzie.
There was a sharper focus on target blocks and greater hunger with more aggressive bidding as well as increased partnering among companies to secure desired blocks. The total amount spent on apparent high bids on deepwater blocks was $3.36 billion, up by 26% from Sale 205 (see NGI, March 24).
"The three key themes we have identified combined to ensure that there were more 'winners' in this sale, while at the same time there was less competition in individual key blocks and consequently more money left on the table," said Julie Wilson, Wood Mackenzie lead Gulf of Mexico research analyst. "Many companies had a sharper focus on key areas with higher bidding on players' top target blocks. Our analysis shows the average bid per block increased by 60% compared to [Sale] 205." Also, the firm noted that many companies that "came away disappointed from Sale 205 stepped up their game in Sale 206."
Wood Mackenzie's latest report, "Record Breakers: Lease Sales 206 & 224 in Deepwater Gulf of Mexico," shows that another feature of Sale 206 was a greater spread of targets and little overlap among companies' unique focus areas. "This is illustrated most powerfully by the number of bids placed on the top 10 tracts in each sale, which in the case of Sale 205 was a total of 85 bids, dropping to 49 bids in Sale 206," Wilson said.
Due to the wider spread of interest, companies bid more aggressively. "In total, winning companies bidding on the top 10 blocks in Sales 205 and 206 left $162 million more on the table in the 2008 sale," said Wilson.
The report highlights another feature: the increased proportion of apparent high bids that were made in partnership with other companies, which Wood Mackenzie concludes was a strategy employed to spread the high cost of bidding.
"This trend appeared to ensure a higher degree of success for companies bidding together, since the proportion of apparent high bids in partnership was much higher than the proportion of total bids in partnership. Conversely, many of the highest bids were made alone by the top bidders, perhaps reflecting their confidence in the key prospects," Wilson said.
The report points out that in terms of areas of most interest, Green Canyon attracted the most companies, the highest bid and the largest proportion of value in this lease sale. The interest shown by the wide array of companies is driven by the variety of prospect types and risk profiles in the area, from small, shallow, potential subsea tiebacks to high-impact, subsalt Miocene and Paleogene targets. Newly shot wide-azimuth seismic data in the area is available to the industry, which likely spurred many of the companies bidding in Green Canyon.
Looking at the much smaller Sale 224, Wood Mackenzie found that "bidding fell into two distinct areas: a contiguous set of 27 blocks in the middle section of the DeSoto Canyon acreage on offer, and a smaller group of 16 contiguous blocks in the middle of the Lloyd Ridge acreage on offer," the report said. "In both cases, the participants also bid for acreage on the Central Planning Areas side of the border. The acreage attracted lower bidding per acre than in Sale 205, suggesting that the prime properties were snapped up last year. The eastern part of DeSoto Canyon was more coveted than the Central Area, while the opposite was true for Lloyd Ridge."
Wood Mackenzie noted that the eastern parts of the Gulf are largely gas-prone, "and it is hoped that the presence of the Independence Hub gas facility will stimulate exploration in the area and further buildout of infrastructure."
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