The Minerals Management Service (MMS) took in 70% less in bid money during its Western Gulf of Mexico (GOM) lease sale Wednesday than it did during a sale of drilling rights off the coast of Texas last year. Agency officials attributed the disparity to lagging natural gas prices, less participation by independent producers and an “undercurrent” of litigation that marred the latest sale.

Lease Sale 210 received total bids of $145.2 million, significantly less than the $487 million in bids from Lease Sale 207 in the western GOM in 2008. High bids were $115.4 million, with the highest bid ($28.1 million) coming from BP Exploration and Production for Block 96 in Keathley Canyon. Twenty-seven producers participated in the Western GOM sale, submitting 189 bids on 162 blocks covering 924,486 acres.

The sale attracted major producers who were bent on bidding on deepwater blocks located up to 250 miles off the coast of Texas, said GOM Regional Director Lars Herbst. “The deepwater is the big story today.” He estimated that 80% of the bids were for leases in deepwater tracts, which begin at 800 meters, and primarily for terms of 10 years.

There were a lot fewer participants in Wednesday’s sale due largely to the absence of independents, Herbst said. “This was pretty much expected.” He believes the prolific offshore shale plays, which major independents have targeted, may be diverting their attention from the Outer Continental Shelf (OCS).

Chris Oynes, associate director of Offshore Energy and Minerals Management, said he noticed that “there were very few bidding combinations” for this sale, which he attributed to the “undercurrent” of litigation surrounding the GOM lease sale.

In late April the U.S. Court of Appeals for the District of Columbia Circuit vacated and remanded to the Interior Department its five-year OCS leasing plan for 2007-2012 for reconsideration, a decision that threatened to upset the current leasing schedule. The court cited the agency’s failure to “properly consider” the environmental sensitivity and marine productivity of the different areas of the OCS that are included in the leasing plan (see Daily GPI, April 20).

The appellate court in late July took some of the sting out its decision by clarifying that it only applied to the Alaska OCS. It said the MMS could move forward uninterrupted with oil and natural gas sales under the existing five-year for the GOM (see Daily GPI, July 30).

Despite the clarification, Oynes said he believed the court’s action had “a lot to do” with the decreased participation.

One of the areas offshore Texas that drew significant attention was Alaminos Canyon. Chevron U.S.A., BP Exploration, Focus Exploration and ConocoPhillips bid for acreage in this area.

BP Exploration gobbled up most of the leases that were offered in the Keathley Canyon area. There was substantial interest in the East Breaks area, particularly by ConocoPhillips and BP Exploration. Herbst said there have been new seismic surveys done in the East Breaks area, but MMS has not viewed all of the data.

The MMS estimates that the lease sale could result in the production of 242-423 million bbl of oil and 1.64-2.64 Tcf of natural gas.

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