The controversial Western Gulf of Mexico (GOM) Lease Sale 200 by the Minerals Management Service (MMS) went on as scheduled Wednesday, despite legal maneuvers to delay or even prevent it. The MMS announced 381 bids were received for the 3,865 tracts offered offshore Texas and Louisiana. There were 52 producers submitting bids independently or jointly on about 2.1 million acres — more than 20.8 million acres had been offered for bid.
Although the preliminary figures appear low, they are actually on par with last year’s Western GOM Lease Sale 196, which attracted 422 bids on 346 tracts (see Daily GPI, Aug. 18, 2005). In that sale, which brought in $285 million in high bids, 59 companies participated. Last year, the MMS offered leases on 3,762 tracts totaling 20.3 million acres.
Whether the bidding for leases in this sale could have been higher is unclear. Producers may be wary of the ultimate legal outcome of the lease sale; a court hearing on Nov. 13 could determine whether or not the leases are actually awarded. Auction results were announced Wednesday afternoon, several hours later than originally scheduled, following a ruling by U.S. District Judge Kurt D. Engelhardt late Tuesday (see Daily GPI, Aug. 16). Engelhardt’s three-page order filed Tuesday is here.
“It was a very torturous task to get to this point,” MMS Director Chris Oynes said Wednesday in announcing the lease sale results in New Orleans. After thanking MMS staff for its work in putting the lease sale together, Oynes said the MMS “will be developing additional materials to defend this weeks’ sale leading up to a trial on Nov. 13.” Oynes said regardless of the pending legal maneuvers, acknowledgment and payment for the leases will be due to MMS by Friday.
Louisiana Gov. Kathleen Blanco sought to block the lease sale on the grounds that the federal government failed to conduct a proper environmental assessment that took into account the impact of Hurricanes Katrina and Rita on the state’s coastline. She also threatened to block the sales until the state is given more federal royalties to help it recover from the hurricanes.
However, on Monday Engelhardt denied the state’s request for a preliminary injunction to halt the sale, concluding that the state failed to sufficiently show that, absent a preliminary injunction, “irreparable harm” would occur to it during the period between the lease sale and an upcoming trial that is scheduled for November. But the judge warned potential bidders to beware because the leases awarded may turn out to be worth little.
If Louisiana is granted a permanent injunction, the high bidders in the lease sale will “obviously not” be required to pay the MMS for the tracts on which they bid, said MMS spokesman Gary Strasburg. In the meantime, Engelhardt urged the two sides — Louisiana and the U.S. Department of Interior — to seek a possible resolution to their dispute.
MMS estimated before the lease sale that it could result in an additional 136-262 million bbl of oil and 0.81-1.44 Tcf of natural gas.
The MMS said most of the tracts received less than two bids each, and the Garden Banks 654 block attracted the most interest. Garden Banks Block 654 attracted seven bids from Hess Corp., Hunt Oil Co., Petrobras America Inc., Nexen Petroleum Offshore U.S.A. Inc., Kerr-McGee Oil & Gas Corp., Noble Energy Inc. and Murphy Oil & Exploration Co.- USA.
There were 107 bids for tracts in water less than 200 meters deep; 19 bids were for tracts in water 200-400 meters deep. Another 37 bids were for tracts in water 400-800 meters deep; 153 for tracts in water 800-1,600 meters deep; 43 for tracts 1,600-2,000 meters deep; 22 for tracts in water at least 2,000 meters deep. There were 126 bidders requesting an initial lease term of five years; 37 wanting an initial lease term of eight years; and 218 wanting an initial lease term of 10 years.
The bid evaluation results and a final bid recap is expected to be posted in about three months, coinciding with the court hearing.
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