With nearly 600 deepwater Gulf of Mexico (GOM) blocks possibly up for bid in the next two U.S. Interior Department’s Minerals Management Services (MMS) lease sales, the winning bids could fetch a total of $1 billion, more than the region has attracted in a decade, according to an analysis by energy consultant Wood Mackenzie.

The consultant identified 594 deepwater blocks that may be included in this year’s Lease Sales 204 and 205, which would be double the annual average number of leases offered in sales held between 1997 and 2006.

An estimated 18 million acres offshore Texas will be up for lease Aug. 22 when MMS holds Lease Sale 204, the first sale in the five-year (2007-2012) Outer Continental Shelf (OCS) leasing program (see related story). The MMS will auction 3,338 blocks located in the Western GOM OCS Planning Area ranging from nine to about 250 miles offshore in depths from four meters to more than 3,425 meters.

“Back in 1997, a record 1,242 deepwater blocks were leased — 255% more than the 10-year average for 1997 to 2006,” said Wood Mackenzie’s Matthew Jurecky, Americas upstream analyst. “This was followed by a further wave of blocks in 1998 with 878 leases.” However, he said that because of “a combination of incentives such as deepwater royalty relief, robust oil and gas prices and technological advances, companies leased more than they were physically able to explore.”

A “rig conundrum” followed those lease sales following increased production commitments and frontier plays becoming more feasible, and “companies could not even drill potentially exciting blocks in order to get a lease term extension. Fast forward 10 years; these leases are now expiring and up for grabs.”

The analysis identified the deepwater blocks that are between MMS deadlines for inclusion in the 2007 lease sales, which is well above the average number of newly expired blocks — 245 — offered for lease from 1997 to 2006.

“More exciting yet, many of these deepwater blocks are located in plays which could lead to impressive finds,” said Jurecky.

The area likely to draw the most attention is the Lower Tertiary; spread between Alaminos Canyon, Keathley Canyon and Walker Ridge. Forty-one percent of the blocks Wood Mackenzie identified are in this area, and interest is likely to be fueled by the successful flow test carried out last year at Chevron Corp.’s Jack well (see NGI, Sept. 11, 2006).

Because the Lower Tertiary is an emerging frontier play, “there is less known about the area’s geology,” said Jurecky. “In these cases, drilling as close as possible to known discoveries and possible future hubs reduces perceived risk and the size at which a field becomes profitable to develop. Some believe that the Lower Tertiary trend extends as far north as Garden Banks. More bullish expectations on the play will likely lead to aggressive bidding in the trend.”

The analyst cautioned that the lease sales could lead to higher bids and more leased acreage, but that won’t necessarily lead to a proportional increase in exploration and production.

“Tightness in the deepwater oilfield services market, especially in drilling rigs, is likely to limit the benefits of accumulating a mass of blocks as happened a decade ago,” Jurecky said.

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