The Minerals Management Service’s (MMS) royalty relief incentive to drill for deep-gas deposits located in the shallow-water shelf area of the Gulf of Mexico drew a hoard of bidders in Central Gulf Lease Sale 185. The shallow waters of the Gulf (0-199 meters) received by far the most bids in the sale: 374 bids on 1.7 million acres/hectares for $237.8 million.

The entire lease sale drew 793 bids totaling $415 million on about 561 tracts from 66 production companies on Wednesday. Total bids were up from 697 bids on 506 tracts last year, indicating interest in the MMS’ royalty relief provisions and current high natural gas prices. Lease Sale 185 attracted $315.5 million in high bids from 74 companies. It covered about 23.4 million acres/hectares offshore Louisiana, Mississippi and Alabama. A total of 2.8 million acres received bids.

“The results of this lease sale are impressive and reflect a strong commitment by industry to increase domestic oil and gas production during this crucial period for our nation,” said MMS Director Johnnie Burton. “Although interest in deepwater continues, two-thirds of the bids in this sale are on the shelf. We believe this reflects definite interest in deep gas in shallow waters partly in response to royalty relief offered as part of MMS’s Deep Gas Initiative.”

The MMS provided for royalty suspension in the shallow-water shelf area for the first 20 Bcf of production from a well drilled into a new deep gas reservoir (15,000 feet below sea level). The well must commence production within five years from lease issuance.

The agency estimates that undiscovered deep gas resources on the near-shore shelf could be in the range of 5 to 20 Tcf and that this incentive applied to all of these resources might yield an additional 250 to 600 Bcf of gas production in 2003 through 2007. Up to 10% of this incremental effect could be realized from proposed Sale 185 alone, the MMS speculated. Estimates of undiscovered economically recoverable hydrocarbons expected to be discovered and produced as a result of this sale range from 270 to 650 million bbl of oil and 1.59 to 3.30 Tcf of gas.

Kerr McGee was the top bidder in Central Gulf of Mexico Lease Sale 185. It placed 63 high bids totaling $28.2 million. The second most high bids were placed by Newfield Exploration with 51 for $12.6 million, followed by BHP Billiton Petroleum with 50 bids for $10.5 million. Chevron USA Inc. placed $21.7 million in high bids (41) and Murphy Exploration placed $21.5 million in high bids (35). Other top high bidders included Magnum Hunter (40 for $8.5 million), Unocal 27 for $18.7 million), Remington (23 for $3 million), Ocean (22 for $11.6 million) and BP (22 for $4.3 million).

Hunt Petroleum, along with partners Cheyenne International and Energy Partners Ltd. submitted the highest single bid: $8.2 million for South Marsh Island Area South Addition 109 in 0-199 meters of water.

The deep water Gulf (800-1,599 meters) received 79 bids totaling $89.2 million and the ultra deep water (1,600+ meters) received 63 bids totaling $32.4 million. The most bids in the lease sale (10) were placed on West Cameron Area 23 of the Gulf.

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