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High Bids in Central GOM Auction Mark Post-Macondo Optimism

June 25, 2012
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Statoil Gulf of Mexico LLC topped all bidders for all of the acreage offered last Wednesday in the first Central Gulf of Mexico (GOM) lease sale since the Macondo well blowout. The producer's offer of $157.1 million for a deepwater block in Mississippi Canyon (MC) was the highest for any GOM prospect in 30 years.

The Statoil ASA subsidiary, which already is a big-game hunter in the GOM deepwater, pushed aside three other competitors vying for MC Block 718: LLOG Exploration LLC, $28.2 million; Shell Offshore Inc., $6.1 million; and BP plc's $3.5 million. Statoil had bid on 32 blocks in the auction.

"This sale, part of the president's all-of-the-above energy strategy, is good news for American jobs, good news for the Gulf economy and will bring additional domestic resources to market," said Interior Secretary Kenneth Salazar, who presided over the auction in New Orleans. "The numbers speak for themselves: every year the President has been in office, domestic oil and gas production has increased, foreign imports of oil have decreased, and we are currently producing more oil than any time in the past eight years."

Shell Offshore submitted the most bonus bids on 24 tracts that together totaled $406.6 million, according to the Bureau of Ocean Energy Management (BOEM).

According to the preliminary BOEM statistics, the nine companies after Shell Offshore that had the highest total bids received were Statoil, $333 million; BP, $240 million; Chevron U.S.A. Inc., $190 million; ExxonMobil Corp., $91 million; Apache Deepwater LLC, $72 million; Stone Energy Offshore LLC, $36 million; ConocoPhillips, $26 million; Apache Corp., $24 million; and Arena Energy LP, $9.6 million.

MC deepwater blocks, like the one that attracted Statoil, have drawn many explorers in the past decade; Block 718 is about 60 miles southwest from the site of the Macondo well blowout in April 2010, that occurred one month after the last Central GOM lease sale (see NGI, March 22, 2010).

Last week's sale was the fourth largest ever for the Central GOM, according to BOEM Director Tommy P. Beaudreau. The auction drew 56 operators bidding a total of $1.705 billion-plus to prospect 454 tracts offshore Louisiana, Mississippi and Alabama. The sum of all the bids received totaled $2.6 billion.

The lease sale also marked the final GOM auction for the current Outer Continental Shelf leasing program for 2007-2012. The economically recoverable hydrocarbons that could be produced as a result of the acreage offered in the latest sale is estimated at about 0.8-1.6 billion bbl of oil and 3.3-6.6 Tcf of natural gas.

"Two years ago at this point we were still looking at a Gulf of Mexico that had riveted the nation and the world and there was a question mark on oil and gas and how the world would continue to produce," Salazar said referring the Macondo well blowout. The latest lease sale "milestone...is another step in resiliency with the industry and with the government...We could not have done what needed to be done without the great work of the Bureau of Energy Management along with the partnership of industry to make sure we have safe, responsible energy production in the oceans of America."

After the GOM oil spill "people said at that time to shut down production in the Gulf but we didn't believe it. We made reforms and we are proud to be here today," said the Interior chief.

"Today we continue to show the gathering strength of the Gulf economy, and no doubt [Wednesday's] sale is good news for the Gulf and the region" and is "proof positive that the U.S. government and the oil and gas industry are confident that we can meet heightened safety requirements" that include safety, well containment and environmental safeguards.

"Before moving forward with Sale 216/222, we conducted a rigorous analysis of the environmental effects of the Deepwater Horizon oil spill on the Central Gulf of Mexico," said Beaudreau. "We have also continued a number of lease terms designed to ensure fair return to the American people and provide innovative incentives to promote diligent development of our nation's offshore oil and gas resources."

BP made it clear that the GOM remains a top priority. Included in its bids was a $27.7 million offer for Walker Ridge Block 270 in the Lower Tertiary Trend. The bid topped ones by ExxonMobil, Shell Offshore, Marathon Oil Co. and Samson Offshore Inc., which had the second-closest bid at $15.218 million.

The Macondo well's infamy led to a huge overhaul in offshore regulations, as well as in BP. There was talk for a time of forbidding BP from exploring or developing oil and gas in the United States (see NGI, July 19, 2010).

National Ocean Industries Association President Randall Luthi, who formerly was head of the BOEM's predecessor Minerals Management Service, said last week's auction "shows the kind of results we can have when industry and the federal regulators work together in a cooperative, noncombative manner." He credited the Obama administration for holding the combined sale.

BOEM's Beaudreau and Salazar "made the effort to have these two sales before the expiration of the five-year program, and industry responded in kind, by stepping up to the plate and hitting a home run for domestic energy production," Luthi said.

However, Rep. Doc Hastings (R-WA), who heads the House Natural Resources Committee, said the Obama administration was taking undue credit for the lease sale, which combined 216 with 222; 216 originally was scheduled to be held last year but was delayed as the BOEM set up new safety regulations.

"While the Obama administration has now canceled and delayed more offshore lease sales than they have held, that is not stopping them from patting themselves on the back for holding a lease sale that was originally scheduled by the previous administration," Hastings said. "President Obama is not fooling anyone into thinking he suddenly supports increased offshore American energy production after he spent the last three and a half years driving rigs overseas, putting thousands of people out of work and devastating local economies through his anti-energy policies."

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