The $703 million companies doled out for exploration tracts in Central Gulf of Mexico Lease Sale 208 was certainly no barnburner when compared to last year's $3.7 billion and the prior year's $2.8 billion extravaganzas. However, had it not been for a couple of handfuls of lofty bids, including Shell's sale-high $65.6 million for Mississippi Canyon Block 721, Sale 208 totals would have more accurately reflected the current hard economic times for the offshore industry, in particular fallout from the sudden collapse in world oil prices and the credit crisis.
In fact, the top 20 of 476 bids submitted on 348 blocks in Sale 208, held March 18 in New Orleans' Superdome, alone generated roughly $393 million, or nearly 56% of the $703 million in total apparent high bids. In comparison, last year's Central Gulf Lease Sale 206 drew more than twice (1,057) the bids on several hundred more blocks, for a total of 615 blocks. Moreover, 56 companies submitted bids in Sale 208 versus 78 companies in Sale 206.
Overall, sale participants submitted the lowest number of both bids and blocks since 2000, as well as the lowest total dollar amount in three years. Still, there were more than nine single bids exceeding $15 million for deepwater tracts, not bad in an environment of depressed oil and gas prices. Moreover, the value put on some of these tracts by companies was on average almost $2 million per tract, higher than in recent sales.
Cherry picking deepwater discoveries and prospects
Cherry picking around known deepwater discoveries and prospects appeared to be the order of the day for companies like Shell, Marathon Oil, Noble Energy, BP, Eni, Repsol, Samson Offshore, Cobalt International Energy and StatoilHydro.
"At least the top five (bids) are associated with either recent discoveries or producing fields in deep water," Lars Herbst, Gulf of Mexico regional director for the U.S. Minerals Management Service (MMS), told UpstreamReview. He noted that Mississippi Canyon Block 721, as well as adjacent Block 720, another top five winner with a bid from Shell of $23.5 million, is located just north of the so-called Mars-Ursa basin, among the more prolific producing regions of the Central Gulf.
Some of the more lofty bids placed on ultra-deepwater blocks in Walker Ridge likely are "step-outs" or "off-sets" of Lower Tertiary prospects, in particular the high-profile Jack discovery on Walker Ridge Block 759, Herbst said. Walker Ridge Block 578 drew the second highest bid in the sale ($46.47 million), while adjoining Block 579 drew the seventh highest bid ($19.37 million) in the sale. The winning bids on these two blocks were submitted by partners Marathon Oil and Spain's Repsol.
Two other high-flying Walker Ridge blocks, 133 and 134, could be geologically associated with the recently announced Shenandoah oil discovery on Block 52, Herbst indicated. Block 133, which drew a winning bid of $22 million, the sixth highest bid in the sale, was picked up by a consortium consisting of Italy's Eni and U.S. partners Colbalt International Energy and Samson Offshore. Block 134, which generated a bid of $16.22 million, the ninth highest bid in the sale, was acquired by Marathon Oil.
"The one (block) in Green Canyon looks like it could be an off-set to Tahiti," Herbst noted, referring to Green Canyon Block 774, grabbed by E&P independent Noble Energy for $31.78 million, the third highest single bid in Sale 208. Situated on Green Canyon blocks 596, 597, 640 and 641 around 190 miles south of New Orleans, the Tahiti complex is among the largest oil discoveries in the Gulf of Mexico.
Shell emerges as biggest overall player
Based on the sum of all high bids, Shell Gulf of Mexico, Inc. clearly emerged as the overall winner in Sale 208, coughing up a total of $153.63 million for 39 blocks. Other Big Ten finishers were BP Exploration & Production, Inc., 27 blocks on $77.46 million in high bids; Marathon Oil, 16 blocks for $62.44 million; Noble Energy, Inc., 24 blocks for $55.44 million; BHP Billiton Petroleum (Deepwater), Inc., 28 blocks for $50.39 million; Statoil Gulf of Mexico, Inc., nine blocks for $49.27 million; Repsol E&P USA, Inc., 20 blocks for $48.54 million; ExxonMobil Corp., 15 blocks for $24.48 million; Chevron USA, Inc., 21 blocks for $22.40 million; and Ecopetrol America, Inc., 26 blocks for $20.55 million in total high bids.
"The addition of these blocks, which include our top three targets for the sale, fits in nicely with Noble Energy's growing inventory of exploration opportunities," said Charles D. Davidson, the company's chairman, president and chief executive officer. Prior to the lease sale, Noble Energy held an interest in 93 deepwater Gulf of Mexico leases, representing roughly 315,000 net acres.
Marathon's extensive winnings covered about 92,000 acres in the deepwater, ranging in water depths from approximately 1,500 feet to 7,500 feet. “We were successful in expanding Marathon's significant position in the Lower Tertiary play with what we believe are two high-quality prospects that complement our portfolio," said Annell Bay, vice president of worldwide exploration for Marathon. "And, we added eight well-positioned blocks to our already strong position in the Miocene play."
Mariner captures 12 of 17 blocks bid on
Mariner Energy, Inc., while not among the biggest winners, was the apparent high bidder on 12 of 17 blocks. The company submitted individual and joint bids with one or more partners on 12 deepwater blocks and five shelf blocks, with a total net exposure of $11.1 million. Mariner's net exposure on the 12 apparent high bids was $7.3 million.
"We’re very pleased with the results of this lease sale, which efficiently expanded our prospect inventory," said Scott Josey, Mariner's chief executive officer. "Our exploration portfolio exposes our shareholders to every known play type in the Gulf of Mexico -- from conventional amplitude plays on the shelf to subsalt and Lower Tertiary plays in deepwater."
Energy XXI, a small E&P independent, was the apparent high bidder on both blocks the company sought, shelling out a total of $472,000 for 100% working interests in the blocks, located within its core operating region, offshore Louisiana. The blocks are Main Pass 63, which is adjacent to Energy XXI's Main Pass 61/72 fields, and West Cameron 579, which is adjacent to the company's East Cameron 334/335 fields. "This is an area where we see potential to extend the success of our existing producing fields through exploration and development activity," said Steve Weyel, Energy XXI's president and chief operating officer.
In addition to the low oil price environment, the diminishing quality of leases, many of which have been returned by companies and reoffered in sales by MMS, may have had a negative affect on the overall bid totals. "The perceived hydrocarbon potential is what drives the bidding mostly," said Chris Oynes, MMS' associate director for offshore energy minerals management. "These...were more likely in general the poorer prospects."
Despite the significantly lower bid total, the new Obama administration, which has been at odds with industry over energy policy and specifically a proposed tax hike on production, declared federal lease sale Sale 208, held March 18 in New Orleans, an apparent success.
"The sale results show us that the Central Gulf of Mexico has been and will remain a vital part of our nation’s energy picture as a producer of oil and natural gas," U.S. Interior Sec. Ken Salazar asserted following the sale, via a telephone link from an offshore oil platform he was visiting.
Salazar versus the oil industry
Salazar recently has come under fire by the oil industry for taking steps to delay or even cancel some onshore leasing while touting what he calls the administration's commitment to "responsible" offshore access. E&P companies "shouldn't see us as their enemy," Salazar said. But he did not back down from proposed increased taxes on oil and gas leases, saying the U.S. citizens who own the assets that are being drilled upon should get their fair share of money. He insisted Obama's energy policies had nothing to do with the sale outcome.
