More than 40 producers offered 383 bids with high bids totaling $850.8 million to secure leaseholds in the Central and Western Gulf of Mexico (GOM), mostly for deepwater prospects, the Bureau of Ocean Energy Management said Wednesday. However, there were no bids in the Eastern GOM auction, the first in eight years.
Freeport-McMoRan Oil & Gas LLC's high bids made up more than one-third (37%) of the total, including the auction's biggest: $68.8 million. BP plc, which until last week had been barred from offshore auctions for more than a year, submitted high bids that totaled $41.6 million for 24 blocks.
Nearly all of the action in the latest sales was in the Central GOM's deepwater, where activity has escalated. Central Sale 231 drew interest from 42 companies that submitted 380 bids on 326 blocks. For Western Sale 233-U.S. Boundary Area, three bids totaling $21.3 million were submitted by ExxonMobil Corp. for three blocks, all located or partially located within three statute miles of the maritime and continental shelf boundary with Mexico.
BOEM Director Tommy Beaudreau shared a microphone to discuss the auctions with Interior Secretary Sally Jewell and John Rodi, the regional director for GOM operations. They were asked why the bid offerings in the offshore have dropped in the past several sales.
"I think what we see in the lower number of bids is a trend we have seen in the past several sales," Beaudreau said. In the GOM, there's been a push to develop deepwater blocks with a "focus on extremely perspective areas, but some of which also present challenges in terms of exploration and development..." Exploring certain deepwater areas requires a "certain awareness and also a focus on certain companies with the wherewithal to make investments..."
A year ago 52 producers submitted 407 bids on 320 blocks covering 1.7 million acres that netted $1.2 billion in bonus bids; in 2012 56 firms submitted high bids for 454 tracts (see Daily GPI, March 21, 2013). The Western and Central sales combined had offered more than 40 million acres for exploration and development offshore Louisiana, Mississippi and Alabama on more than 7,500 unleased blocks up to 230 miles offshore and in water depths from 9-11,115 feet-plus.
However, "what shouldn't be overlooked is the fairly robust bidding" that continues with "traditional Gulf operators" in the shallow waters," said Beaudreau. "We see a trend in deepwater, but some traditional activity in the shallow water Shelf."
Rodi also pointed to mergers that have partnered offshore drillers, which has resulted in a reduced number of bids. As well, he said, there's been a number of new players.
"The bottom line is, we have a very healthy, very large number of participants."
The majors, super independents and smaller independents whose entire focus is the GOM were the standouts in the latest auctions. Atwater Valley Block 198 in the Central region, drew six bids, the most for the 231 sale, from well seasoned deepwater explorers Freeport, ExxonMobil, Shell Offshore Inc., Eni Petroleum US LLC, Stone Energy Offshore LLC and LLOG Bluewater Holdings LLC.
West Delta Block 41, also in the Central region, drew four bids by EPL Oil & Gas Inc., Energy XXI GOM LLC, Bois d'Arc Exploration LLC and Talos Energy Offshore LLC. East Cameron Block 359, another deepwater prospect, captured three bids by Arena Energy LP, Peregrine Oil & Gas II LLC and Talos. All of the other blocks receiving bids received mostly one or two offers.
BP, now running eight rigs in the Gulf, and the U.S. Environmental Protection Agency earlier this month reached an agreement to lift a 16-month suspension that had prevented the producer from bidding on new federal projects (see Daily GPI, March 13; Nov. 29, 2012). Eight of BP's 31 new bids were for blocks in Mississippi Canyon, where the Macondo well blew out in 2010. BP was the high bidder on 24 blocks, with the sum of the high bids totaling more than $41.63 million.
No bids were submitted for Eastern Sale 225, where leases were offered for the first time in eight years. The area may be able to produce 162 Bcf and 710 million bbl (see Daily GPI, Dec. 4, 2013). The new Eastern sale was the first since March 2008 (see Daily GPI, Oct. 31, 2007).
Why no interest in the Eastern GOM?
Jewell, a former petroleum engineer, said having worked on decisions about how and why projects are funded, she had a bit of insight into the lack of bidding.
"There are a number of leases let in the area that have yet to be developed...It's more of a gas play than an oil play, and the price of gas, the distribution network play into a company's decision about whether it makes sense to bid...All of that adds up to assume those factors were at play in not bidding on the lease sale."
The officials stressed that even though there was no interest today, the Eastern GOM auctions will continue, with the next one scheduled in 2016.
"I'd also like to add some geologic perspective," Rodi said. "It's not exactly 100% clear for scientists what is the nature of the structure in the Eastern Gulf. It's critical that they get some additional information to firm up their view of the geologic potential and what the structures are like. Over the next two years there may be opportunities to get information on the area," through new seismic surveys that are "likely to come forward as well."