Oil companies bid $1.6 billion for Gulf drilling rights

NEW ORLEANS — Dozens of companies offered up $1.6 billion for the rights to drill in the central Gulf of Mexico during a government lease sale Wednesday that affirmed a drilling revival in the region and the industry’s interest in tapping ever-deeper territory.

All told, 52 oil and gas companies submitted 407 bids on 320 blocks, with high bids totaling $1.2 billion.

Tommy Beaudreau, the director of the Bureau of Ocean Energy Management that conducted the auction, called it an “extremely successful and an extremely robust sale.” And bureau officials said it ranked as the sixth-highest-grossing central Gulf auctions since area-wide leasing began decades ago.

“It serves as a reminder that the Gulf of Mexico, and, in particular, the deepwater Gulf, will continue to play a major role in future energy development in the country,” Beaudreau said. “The Gulf of Mexico remains one of the cornerstones of the United States’ domestic energy portfolio and it will stay that way for many, many years to come.”

Embattled British oil giant BP, one of the largest leaseholders in the Gulf of Mexico, skipped the high-stakes event amid ongoing legal troubles over the fallout from the 2010 oil spill and an ongoing government-imposed suspension blocking it from obtaining new federal contracts.

Although the company was permitted to submit bids in the sale, those offers could get tossed out if the company were still under the suspension when the government finishes evaluating bids and prepares to award leases in about three months.

“Due to our extensive portfolio of Gulf acreage and the uncertainty surrounding the suspension and debarment of certain BP businesses, we have decided not to participate in this week’s lease sale,” said Geoff Morrell, BP’s head of U.S. communications, in a written statement.  “We hope we can reach a reasonable resolution with regulators so that America’s top energy investor over the past five years can once again enter into new contracts with the U.S. government.”

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Still, plenty of other companies filled the void, including some firms relatively new to the Gulf.

In opening the sale at the Mercedes-Benz Superdome in New Orleans, outgoing Interior Secretary Ken Salazar said the auction was a sign that Gulf drilling is going strong, nearly three years after the BP oil spill devastated the region.

Going in, BP knew its offers could get tossed out if the company were still under suspension when the government finishes evaluating bids and prepares to award leases in about three months.

Still, Tommy Beaudreau, the director of the Bureau of Ocean Energy Management that conducted the auction, called it an “extremely successful and an extremely robust sale.”

“It serves as a reminder that the Gulf of Mexico, and, in particular, the deepwater Gulf, will continue to play a major role in future energy development in the country,” Beaudreau said. “The Gulf of Mexico remains one of the cornerstones of the United States’ domestic energy portfolio and it will stay that way for many, many years to come.”

He praised the oil industry for making strides to improve safety in the wake of the spill.

“People of industry stood up and said ‘we are going to get it right,’ and we are getting it right,” Salazar said.

As the auction got under way, officials with the Bureau of Ocean Energy Management opened the submitted bids and read them aloud, sometimes in a dry monotone that belied the millions of dollars at stake.

Most of the interest was concentrated in the Walker Ridge area of the Gulf, where at least six companies are vying for some 24 tracts. Chevron and Statoil recently have announced promising discoveries there.

The sale’s highest bid — $81.8 million offered by Statoil and Samson — was for Walker Ridge block 271.

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Separately, seven companies submitted bids for Walker Ridge block 187, with Venari Offshore LLC apparently offering the highest amount — $45,508,212 — for the right to drill there. The privately held firm just barely edged out Anadarko’s offer of $43,585,920 for the same territory.

As Salazar opened Venari’s offer, he paused. “Ooooh,” he said with a grin, before reading off the amount. The number also caused a stir in the crowd, where scores of industry representatives exchanged glances and a murmur of “wow” went through the room.

In a sign of the wide range of sealed bids offered for some prospects, the lowest bid for Walker Ridge block 187 was just $1,351,402, which Chevron offered for the tract. Other bidders included Cobalt and Total, submitting a joint $1,688,825 for the block, and Exxon, which bid $3,250,635 for it.

John Rodi, regional director of the ocean energy bureau, said the rise in individual bids reflects energy companies’ focus on a smaller number of promising tracts — guided by seismic data about potential pockets of oil and gas.

“The companies are focusing now on a smaller number of tracts,” Rodi said. “That allows them to divert more of their budget that is available for bidding on a smaller number of tracts.”

Industry representatives and analysts had anticipated the sale would mark a return to more normal conditions that existed before the 2010 Gulf oil spill prompted the cancellation of lease sales. The first central and western Gulf sales after the spill were blockbusters, driven by pent-up demand.

“The enthusiasm evident in today’s sale confirms a continuing positive trend for the offshore industry in the Gulf of Mexico,” said Randall Luthi, head of the National Ocean Industries Association.  “This sale is a more accurate barometer of their true interest in the region.”

Chris John, president of the Louisiana Mid-Continent Oil and Gas Association, said the bid totals “clearly demonstrate that industry remains committed to doing business in the Gulf of Mexico.”

To participate in the auction, companies had to pay minimum bonus bids of $25 per acre for water depths less than 400 meters and $100 or more per acre for greater water depths. Energy produced from the leases would be subject to an 18.75 percent royalty rate.

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The area up for grabs on Wednesday encompassed 7,299 blocks spanning 38.6 million acres, though interest may be focused on the 306 blocks that were being made available for the first time in years. The territory was newly available because previous leases have been relinquished, terminated or expired since the last central sale.

The available acreage included shallow tracts just nine feet deep as well as territory in more than 11,115 feet of water.

This was the second sale under an Obama administration offshore leasing plan governing auctions through June 30, 2017.

Under the five-year lease plan, the Interior Department’s Bureau of Ocean Energy Management is scheduled to hold 12 Gulf of Mexico lease sales and is planning to conduct three auctions of leases in the Cook Inlet near Anchorage and the Chukchi and Beaufort seas north of Alaska.