MMS Gets $190M in Bids for 320 Western Gulf Tracts

Despite declining gas prices, drilling economics and drilling activity in the Gulf of Mexico, the Interior Department's Minerals Management Service reported western Gulf lease sale 180 last week was the fourth largest in the last 10 years in terms of the number of tracts receiving bids.

The lease sale received 386 bids totaling $190 million. About $165.6 million in high bids were received. Fifty participating companies bid on 320 tracts in the western Gulf, offshore Texas, and in deeper waters offshore Louisiana. There were no bids, however, submitted on 53 tracts offered in Central Gulf of Mexico Lease Sale 178, Part 2, which covered the Western Gap area opened last year by a treaty between the United States and Mexico.

"Sale 180 was clearly a success with the number of tracts bid on, ranking fourth in the last 10 years for a Western Gulf sale," said Acting MMS Director Tom Kitsos. "This sale saw spirited bidding activity by the independent oil and gas companies. The top three companies in submitting bids were independents: Kerr-McGee (55 bids), Spinnaker (35 bids), and Amerada Hess (31 bids)."

Kerr-McGee and partners were the high bidders on 42 blocks. Kerr McGee's net total exposure for all high bids was $32 million, the company said. "These new leases complement our existing prospect inventory in the deepwater Gulf and fit our strategy to build core operating areas within high- potential trends,'' said CEO Luke R. Corbett. Kerr-McGee is the largest independent leaseholder in the Gulf as well as in the Gulf's deep waters. With the additional blocks, it will hold interests in 377 deepwater blocks and will operate more than 75%. Award of the 42 new blocks would increase the company's total leaseholdings in the Gulf by 236,655 gross acres to nearly 3 million gross acres.

Devon Energy said it was the high bidder on nine blocks in western Gulf. Five of the nine blocks are on the shallow shelf. Four are in deepwater. Devon's total exposure for its high bids was approximately $1.8 million. Assuming approval of its bids, Devon said it will hold 367 lease blocks in federal waters of the Gulf of Mexico, including 257 on the shelf and 110 in deepwater. Devon currently operates 101 platforms in the Gulf of Mexico.

MMS said the greatest industry interest last week was focused on the Garden Banks. "The 200 to 800 meter water depth area in Garden Banks saw the most competitive bidding with eight blocks having three bids or more," said Kitsos. An MMS spokeswoman said Garden Banks received a lot of interest because it contained some recently relinquished blocks and because there is infrastructure already in place in the area. It's also an area that isn't in ultra deep water.

In contrast, the Western Gap has waters that are more than 1,600 feet deep. "That may be one of the reasons we saw no bids in the Central Planning Area of the Western Gap," said MMS spokeswoman Caryl Fagot. Lease sale 178 offered 53 blocks in the Central Planning Area beyond the U.S. Exclusive Economic Zone (EEZ) in the northern portion of the Western Gap. Lease sale 180 also included 258 blocks in the Western Gap region. "Nine blocks received bids in the Western Planning Area of the Western Gap. The Central Planning Area is so darn far out there. There's no infrastructure. It's ultradeep water. There's also some geological reasons. It may not be as attractive as the western portion." The Western Gap, however, is thought to contain huge amounts of untapped oil and gas.

Fagot said in contrast to the expectations of some industry experts, there was an equal amount of interest in the shallow and deepwater tracts. "There also was some activity near the southern Texas coast, near Corpus Christi and Brownsville, that was kind of unexpected. Overall it was a very good sale, much better than the Western Gulf sale last year."

Two hundred and sixty-one tracts in water depths of 200 meters or more received bids. The highest bid on a tract was $8.3 million, submitted by Kerr McGee, Amerada Hess and Petrobras America Inc. on Garden Banks Block 245. The high bid on a block (each approximately nine square miles) will go through an evaluation process to ensure the public receives fair market value before a lease is awarded.

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