MMS Awards 534 Central Gulf Leases

The Interior Department's Minerals Management Service completed its two-phase bid evaluation process for Central Gulf of Mexico Lease Sale 178, Part 1 on Friday, awarding 534 leases worth a total of $499.6 million. MMS actually rejected 13 high bids worth $5.7 million, calling them "insufficient for fair market value," but said the sale indicated a "continued strong showing" by both majors and independents.

MMS held the sale in March (see NGI, April 2), and it garnered bids on 547 tracts total. The highest accepted bid went to Exxon Asset Management Co., which bid $26,115,000 for Mississippi Canyon Block 912.

Other winning bids of $18,378,000 by Kerr-McGee Oil and Gas Corp. for Green Canyon Block 680, and another for $18,315,000 also by Exxon Asset Management for Mississippi Canyon Block 956, were the second and third highest accepted bids. All of the top three bids were in water depths of more than 1,600 meters (5,249 feet).

"We are pleased with the continued industry competition for Gulf of Mexico leases," said MMS Regional Director Chris Oynes. "Shallow water bidding --- water depths up to 555 feet --- was significant for this sale, with shallow water tracts receiving almost 62% of the total tracts bid on."

Shallow water activity may be attributed, he said, to relatively strong energy prices, and the new MMS royalty relief provision for 20 Bcf of deep gas production (more than 15,000 feet) in shallow shelf waters (see NGI, March 5). For the first time, the deep-gas incentives offered would specifically allow production of up to 20 Bcf of natural gas royalty-free, provided it's at depths of more than 15,000 feet.

Deepwater royalty relief would be applied to tracts in water depths greater than 800 meters. The relief will be provided for both gas and oil production. The first 9 MMboe of production will be royalty free from leases in water depths between 800 and 1,599 meters, while the first 12 MMboe of production will be royalty free for leases in 1,600 meters or more of water, the agency said. This suspension of the royalty obligation will be granted only to individual leases, not to fields.

Almost 20% of the winning bids were in deepwater ranging from 2,624 feet to 5,248 feet. Lease terms are for 10 years, and almost 9% of the bids were in ultra deepwater, which is deeper than 5,249 feet. The ultra deepwater leases also have a 10-year term.

Companies ranking in the top six by number of winning bids including the number of tracts awarded were Chevron U.S.A. Inc., 53; Magnum Hunter Production Inc., 45; Samedan Oil Corp., 33; Remington Oil and Gas Corp., 33; Kerr-McGee Oil and Gas Corp., 32; and Spinnaker Exploration Co., 32.

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