Uncle Sam to collect $110 million from offshore oil auction

WASHINGTON — Oil and gas companies are set to pay the government $110 million in high bids for leases in the western Gulf of Mexico, after an auction Wednesday that underscored the industry’s interest in deep-water territory.

Fourteen companies participated in the sale, which nominally put 21 million acres up for grabs, though ultimately, just 81 blocks spanning 433,823 acres were sold.

The industry’s interest was concentrated on the Alaminos Canyon area and territory near the U.S.-Mexico maritime border that had been off limits for development while the two countries enacted a treaty to govern oil development. About a quarter of the bids were for territory in that area.

Western sale: 14 companies bid on Gulf acreage

“This sale . . . reaffirms the industry’s great interest in deep-water prospects in the transboundary area,” said Randall Luthi, head of the National Ocean Industries Association.

The biggest single bidder was BP Exploration and Production Inc., which was the high bidder on 27 of the 32 bids it submitted to the Interior Department’s Bureau of Ocean Energy Management and will pay $22.8 million for that territory. BHP Billiton Petroleum won 14 of its 16 bids, for a total amount of $21.9 million and ConocoPhillips Co. won 10 of its 11 bids, totaling $23.4 million.

Companies view their success not just in terms of how many tracts they win but also how much they pay for the territory. The government’s sealed bidding process means that companies don’t know how many other firms will be jockeying for the same blocks — nor what they are offering. As a result, individual blocks can attract widely varying offers.

Consider that Chevron won Alaminos Canyon block 215 by offering $8.5 million for the tract — nearly 10 times the $873,760 bid by its only competitor for the same acreage, Anadarko Petroleum Corp.

Chevron also had the highest single bid in the sale — a $16.8 million offer for Alaminos Canyon block 431. And, after winning all five of the blocks it pursued, Chevron became the auction’s biggest spender, leaving the sale with a $25.8 million tab.

Anadarko, by contrast, failed to win any of the three blocks it targeted.

Shell Oil Co. lodged just one offer in the sale, for territory near its Perdido developments in the Gulf. Its $1.75 million bid was enough to win Alaminos Canyon block 905, edging out the only other competitor, Stone Energy, which had bid $1.06 million for the tract.

Shell said in a statement that the acquisition strengthens its existing position in the Perdido fold belt, where the company already claims production from 14 wells.

BP said in a statement that the company’s participation in Wednesday’s sale “further underscores its commitment to the Gulf.”

Although sale results are still preliminary, Wednesday’s auction is set to generate more revenue for the federal government than the last western Gulf auction, held in August 2013, which yielded $102.4 million in winning bids for 53 lease blocks.

Ultimately, companies’ total bids — including the winning and losing offers — amounted to $135.5 million.

Oil industry leaders said the auction results should persuade the Obama administration to lease more coastal waters for oil and gas development, going beyond currently planned sales of territory in the Gulf and near Alaska. The ocean energy bureau is in the very beginning stages of drafting a new plan for selling offshore leases from 2017 through 2022.

Related story: Feds urged to put Atlantic waters on auction block

“The western and central sections of the Gulf of Mexico remain important areas for domestic oil and natural gas production,” said Erik Milito, upstream group director for the American Petroleum Institute. “But they have been continually explored for decades while the vast majority of U.S. waters are kept off-limits.”