The prospect of finding deep gas in the shallow waters of the Outer Continental Shelf (OCS) appeared to be the impetus for bidding in Western Gulf of Mexico (GOM) Lease Sale 187 on Aug. 20. Shallow water leases, in plays less than 200 meters deep and more than 15,000 true vertical depth, piqued most producers’ interests, with the offshore sale netting $258.7 million in total bids for chances to explore 3,996 blocks.

The Department of the Interior’s Minerals Management Service (MMS), which conducted the sale, is offering relief or a reduction in the royalty rates in connection with drilling for gas in deep reservoirs.

The sale was higher than the Western GOM sale last August, which netted $181.5 million for 391 bids on 323 tracts. However, it failed to reach the heights of the Central Gulf Lease Sale 185 held last March, which drew 793 bids totaling $415 million on 561 tracts from 66 producers.

The lease sale, MMS’s 100th offshore in the GOM, brought 63 companies making 407 bids on 335 blocks. The latest GOM sale encompassed 3,996 unleased blocks totaling about 21.7 million acres.

Interior Secretary Gale Norton, who was in New Orleans for the sale, called the OCS a “critical source of energy” for the country, adding that the federal government estimates that the United States has a 50-year supply of natural gas, mostly under moratoria. Because of looming shortages, she noted that the OCS contribution is projected to grow significantly over the next few years as more deepwater projects come online and the leasing program continues in the Gulf and in Alaska.

“It is important for Americans to understand how critical the Outer Continental Shelf Lands Act has been for the nation,” she said. “Over the past 50 years, lease sales such as this, have produced about 14 bbl of oil and about 150 Tcf of natural gas. They have also provided oil-in-kind to help fill the Strategic Petroleum Reserve, created thousands of jobs, and generated $145 billion in revenue from federal offshore collections. As the country faces natural gas shortages and family budgets are squeezed ever tighter, today’s sale will help the long-term natural gas supply.

MMS Director Johnnie Burton said there was a “clear and significant gap in the projection of domestic natural gas demand and the available supply.” The royalty suspension was done to “stimulate domestic production in the near term from our most abundant and easily accessible areas.” MMS estimates that the incentives would save about $280 million a year over the next 15 years.

Of the bids received, 110 were for leases in water up to 199 meters deep. Six more were for leases in 200-399 meters; 39 for 400-799 meters; 95 for 800-1,599 meters; and 85 in 1,600 meters or deeper water. The deepest block receiving a bid was in the Alaminos Canyon, which is about 2,510 meters deep.

Amerada Hess Corp. had the most bids at 59, offering a total of $15.65 million for all of the blocks. The rest of the top 10 bidders were BHP Billiton Petroleum (Deepwater) Inc., 56 bids, $8.19 million; BP Exploration & Production Co., 36 bids, $9.13 million; Newfield Exploration Co., 20 bids, $1.96 million; Kerr-McGee Oil & Gas Corp., 19 bids, $6.18 million; Total E&P USA Inc., 18 bids, $4.68 million; Chevron U.S.A. Inc., 18 bids, $4.63 million; Gryphon Exploration Co., $6.75 million; Devon Energy Production Co. LP, 16 bids, $3.42 million; and Exxon Mobil Corp., 14 bids, $4.91 million.

LLOG Exploration Offshore Inc. was the highest bidder overall, with its offer of $22.6 million for a shallow water tract offshore Galveston in the High Island/170 area, where 12 other companies also placed bids. Second highest bidders were partners Dominion Exploration & Production Inc. and Nexen Petroleum Offshore U.S.A. Inc., which bid $5.36 million for a Garden Banks/292 block in waters 400-799 meters deep.

Dominion Exploration had the third highest bid at $3.3 million for a shallow water lease in High Island, while Gryphon had the fourth largest on another High Island lease, the East Addition/128, where it bid $3.3 million. The fifth largest bid was by Shell Offshore Inc., which bid $3.14 million for a lease in the deepwater Keathley Canyon, and Westport Resources Corp. had the sixth largest bid at $2.62 million for another High Island shallow water block.

Shell Offshore was seventh largest with its $2.43 million bid for a Garden Banks block, while LLOG was eighth, offering $2.4 million for a block in the East Breaks. Kerr-McGee and Nexen partnered for a $2.21 million bid on a Garden Banks block, and Hess offered $1.93 million for a Garden Banks block.

Among the incentives offered by the MMS for deep gas drilling are the following:

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