Dozens of companies offered $144.6 million in total bids for the rights to drill in the Gulf of Mexico during a government auction Wednesday, guided by fresh seismic research offering new hints about oil and gas that could lurk underground.
The new geological data captured last summer drove competition for drilling leases in the Gulf’s Alaminos Canyon region, near Shell’s Perdido production hub. For instance, four companies made widely ranging sealed bids — from a low of $5.8 million offered by Exxon Mobil Corp. to a winning $30.6 million bid offered by ConocoPhillips — for deep-water Alaminos Canyon block 475.
The frenzy of bidding on that one block suggests that the companies liked what the sophisticated seismic surveys showed below an underground layer of salt in that region.
“This new data did find a much better image of the prospectivity of the blocks,” said John Rodi, a Gulf regional director for the Bureau of Ocean Energy Management, which conducted the auction. “Companies that may not have been bidding in this area before all of a sudden had new interest.”
ConocoPhillips submitted the most in high bids, spending $50.3 million to nab 29 tracts.
Shell said its winning $4.2 million bid for a block in Alaminos Canyon will build on its existing position in the Perdido Fold Belt.
But the Gulf’s largest leaseholder, BP, opted out of the sale. The British oil giant is suspended from new government contracts in connection with the 2010 Deepwater Horizon disaster.
The ocean energy bureau said it would accept bids from the company but wouldn’t award it any leases unless the company’s debarment ended during a 90-day post-sale evaluation period. BP’s decision suggests the company does not believe its suspension will be lifted during that period.
“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,” BP said in a 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.”
All told, the federal government is set to collect $102.4 million in winning bids for 53 lease blocks in western Gulf waters. That falls short of the government’s $134 million take from a similar auction of western Gulf tracts last year, but still beats the Interior Department’s most lackluster sale in 1992, which brought in just $30.6 million in winning high bids.
Randall Luthi, president of the National Ocean Industries Association, conceded “this sale was not eye-popping and may be closer to a yawner.” The potential costs of looming new offshore regulations and the relatively low price for natural gas may have suppressed interest, Luthi said.
With 61 total bids on 53 blocks, the auction followed a recent trend toward fewer offers overall for Gulf territory, as companies seem to focus their attention on a smaller number of options.
It also reflected the relatively low interest in the mostly shallow-water western Gulf of Mexico, by contrast to the central region, where most of the deep-water leases lie. The bulk of the bids in Wednesday’s sale — 48 — were for territory in at least 800 meters (or 2,624 feet) of water, demonstrating the industry’s continued deep-water interest.
Andy Radford, offshore senior policy adviser for the American Petroleum Institute, said the auction was “an average sale for the western Gulf.”
“There’s just not that much prospective acreage available in the deep water in the western Gulf,” he noted.
In addition, relatively few areas were newly available in Wednesday’s sale, just 107 out the 3,864 blocks originally up for grabs. Sales with a great deal of newly available acreage from recently turned over leases can attract more interest.
Low appetite: Western Gulf lease sale draws tepid interest
During the 21 months leading up to Wednesday’s sale, companies have paid $3.4 billion for Gulf of Mexico drilling leases.
“Companies are taking this opportunity to spend some time looking at what they’ve acquired recently and consider how they want to invest in those properties,” Rodi said. “They’re constantly looking at the new information that might be driving interest in new tracts and balancing that with all the other tracts (they already hold).”
Companies were required to pay a minimum bonus bid of $25 per acre (or fraction) for acreage in less than 1,300 feet of water and $100 or more per acre for blocks in deeper territory.
Energy produced from the leases would be subject to an 18.75 percent royalty rate plus annual rental fees that start at $7 per acre for the shallowest territory. The annual rent increases to as high as $44 an acre after eight years.
The ocean energy bureau received at least one bid within the so-called “Western Gap” area near the U.S. and Mexico boundary in the Gulf.
Although companies were allowed to submit bids on those tracts, the offers are contingent on the U.S. Congress implementing a Feb. 20, 2012 agreement with Mexico that sets the framework for oil and gas development in the region. Although the House passed legislation to enact the year-old treaty in August, it added in an unrelated provision tied to a Securities and Exchange Commission reporting requirement that could sink the deal.
Companies participating in Wednesday’s auction include ConocoPhillips Co., Hess Corp., Chevron, Exxon Mobil Corp., Shell Offshore, W&T Offshore, Anadarko US Offshore Corp., Statoil Gulf of Mexico, Maersk Oil Gulf of Mexico, Castex Offshore, EnVen Energy Ventures and Apache Shelf Exploration.
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