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Gulf Lease Sale Yields 'Good, Not Great' Results

March 23, 2009
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Central Gulf of Mexico (GOM) Lease Sale 208 went off as planned in New Orleans last Wednesday -- despite earlier fears among some Republicans of a delay by the Obama administration -- and the results of bidding were "good...not great," said the Minerals Management Service's (MMS) Lars Herbst, regional director for the GOM.

The sale included the South 181 area, thought to be "one of America's best untapped" offshore regions. House Republicans earlier this month appealed to Interior Secretary Ken Salazar not to delay the sale.

Sale 208 attracted nearly $703.05 million in high bids. Seventy companies submitted 476 bids on 348 blocks comprising more than 1.9 million acres offshore Louisiana, Mississippi and Alabama. The sum of all bids was nearly $933.65 million. The highest bid received on a tract was more than $65.61 million from Shell Gulf of Mexico Inc. for Mississippi Canyon Block 721.

In the 181 South Area 13 tracts received bids. High bids for these tracts totaled nearly $6.48 million. Under an enhanced revenue sharing program mandated by the Gulf of Mexico Energy Security Act of 2006, the states of Alabama, Mississippi, Louisiana and Texas will share 37.5% of the high bids on these tracts as well as all future revenue generated from the acreage in the 181 South Area that was leased in sale 208. Additionally, 12.5% of the revenue from the 181 South Area tracts will be deposited into the Land and Water Conservation Fund for use by states to enhance park lands and for other conservation projects.

"I think this is pretty much what we expected out of this acreage," Herbst said of the results in 181 South. "It's not totally unexpected. The bidding was in the area that we expected." He said the section that saw the greatest bidding activity is where a recent 3-D seismic survey had been completed. "We would have liked to see the 181 South be better but I think we knew that going into the sale some of the geology just isn't there."

American Petroleum Institute President Jack Gerard seized upon the less-than-stellar sale results to note the state of the oil and gas industry and the threat he believes it faces from increased taxes and government restrictions.

"The results of Lease Sale 208 underscore that, like most U.S. industries, the domestic oil and natural gas sector faces tough economic challenges, not only with the economy reeling but with oil prices half of what they were a year ago," Gerard said. "The Obama administration's plans to add billions of dollars in new taxes would have a devastating impact on an industry that supports six millions jobs and contributes billions of dollars to government revenue. These new taxes are ultimately anti-consumer, threatening millions of jobs, the nation's economic recovery and energy security."

Speaking to reporters by phone from a platform in the Central Gulf, Salazar said there might have been more interest in blocks if commodity prices were higher. Nevertheless, he said sale results show that "there is significant interest in the Central Gulf." He also said he didn't think the oil and gas industry was dissuaded from bidding by the expectation of the rollback of incentives to industry. "As we look at the repeal of some of the incentives that were put in place in the last five years for oil and gas companies, those repeals were actually supported by the Bush administration because they weren't needed any more," Salazar said.

Companies submitting the top single highest bids, block, water depth in meters and bid amount were:

High bids will be evaluated in the context of current commodity prices to ensure that they represent fair market value, MMS said.

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