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Western GOM Draws $157M in Lease Bids

A total of $157.7 million was bid last Wednesday in Western Gulf of Mexico (GOM) Lease Sale 229 in New Orleans, the first sale under the Obama administration's new Outer Continental Shelf (OCS) leasing plan for 2012-2017. BP plc, which was temporarily suspended last week from new government contracts, submitted no bids (see related story).

There were 131 bids submitted by 13 oil and gas companies on a total of 116 blocks, with the high bids totaling $133.8 million, according to Tommy Beaudreau, director of the Bureau of Ocean Energy Management (BOEM). The highest bid -- $17.2 million for East Breaks Block 546 -- was submitted by Chevron USA Inc. Chevron also submitted the highest total amount in bonus bids, totaling $56 million on 28 tracts.

The pattern of bidding indicates "that there is significant interest in the deepwater in particular in the western Gulf and the subsalt plays," Beaudreau said.

The sale included approximately 3,800 blocks covering roughly 20.5 million acres located from nine to 250 miles offshore in water depths ranging from 16 to more than 10,975 feet (5 to 3,346 meters). BOEM has estimated that Lease Sale 229 could result in production of 116-200 million bbl of oil and 538-938 Bcf of natural gas.

It was the third GOM lease sale in the past year and the second involving the western GOM. The Western Gulf Lease Sale 218 in December 2011, which made 21 million acres available and received high bids on tracts covering about one million acres, netted nearly $325 million (see NGI, Dec. 19, 2011). Central GOM Lease Sale 216/222, held in June, covered nearly 39 million acres and attracted more than $1.7 billion in high bids for more than 2.4 million acres (see NGI, June 25).

"Taken together, these sales have reflected more than $2 billion worth of investments by industry in the Gulf of Mexico, which is a reflection of how strong and how central the Gulf of Mexico is to the United States energy portfolio...the Gulf of Mexico is and will continue to be one of the bedrocks of the United States' 'all of the above' energy portfolio," Beaudreau said.

The auction came on the heels of the U.S. Environmental Protection Agency's (EPA) announcement that it has temporarily suspended BP Exploration and Production Inc., BP plc and named affiliated companies from new contracts with the federal government. While BP was not barred from participation in the Western GOM lease sale, it did not submit any bids, Beaudreau said.

"If BP had submitted bids, we would have, in light of the suspension order, not awarded any bids for which BP was the high bidder until the suspension was resolved and the bid had met all of our other bid evaluation requirements," he said.

EPA's suspension of BP "applies only to new contracts with the federal government and does not apply to activity under BP's existing leases, and so plan reviews, permitting under their existing leases are not suspended pursuant to this EPA order," Beaudreau said.

BP, which is the largest deepwater leaseholder in the GOM, controlling more than 650 blocks in water more than 1,250 feet deep, recently agreed to pay more than $4.5 billion in fines to the federal government to settle criminal claims related to the Macondo well blowout in April 2010, which destroyed the Deepwater Horizon platform and killed 11 men (see NGI, Nov. 19).

While EPA's suspension order mentioned "BP's lack of business integrity," BOEM officials on Wednesday were kinder in their characterization of the company's practices in the GOM.

"Our experience with BP following the spill is that BP has gone through significant internal reforms, and I believe BP is genuine and sincere about reforming the way it does business offshore and making changes not just about its practices but also about it's culture," Beaudreau said. "BP made a number of commitments to the Interior Department in the form of voluntary undertakings that it agreed would be essentially conditions of any activity it would undertake offshore. And it was on those basis, as well as other reforms by BP, that we've allowed them to resume operations over the last little more than a year...as with all operators, we need to see continuous vigilance on safety, we need to see continuous commitment to safety performance and to responsible work.

"I do think BP has made significant progress in that direction, and it is for that reason that we have permitted BP to conduct work over the past year or so. That is not to say that there isn't more work for BP and for others to do to maintain that vigilance."

The administration's final leasing program, which was released in June, proposes 15 leases sales in six offshore areas. Twelve of the potential lease sales would be held in the Western and Central GOM and the portion of the Eastern GOM not currently under a congressional moratorium (see NGI, July 2). Three of the potential lease sales are scheduled for offshore Alaska in the Cook Inlet, Chukchi and Beaufort seas. Interior estimates that the Obama leasing plan makes more than 75% of recoverable energy resources available for exploration and development. BOEM has scheduled a March auction of 38 million acres in the Central GOM (see NGI, Oct. 1).

The Democratic leasing plan has come under attack from industry because it does not include lease sales off the Atlantic or Pacific coasts. House Republicans this summer introduced an alternate plan, which called for leasing in the two offshore regions that Democrats placed off-limits to producers (see NGI, July 23).

At least one oil and gas industry group continued its criticism of the plan last week.

"By restricting activity to the same 15% of the Outer Continental Shelf that the industry has been picking over for decades, the administration is ensuring that our offshore energy resources are being underdeveloped," National Ocean Industries Association President Randall Luthi said following the lease sale. "We are all losing as a result. A true 'all-of-the-above' energy policy would include opening up access to new offshore areas for exploration and development of oil and natural gas."

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