Lower Tertiary Trend Remains Focus of Western Gulf Bidding

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Lower Tertiary trend acreage in the western deepwater Gulf of Mexico was once again a focal point of bidding in the Bureau of Ocean Energy Management’s Western Gulf lease sale Wednesday. Fourteen companies submitted 93 bids on 81 of the 4,026 offered in Western Planning Area Lease Sale 238. The sale, which offered more than 21 million acres for oil and gas exploration and development offshore Texas, garnered over $110 million in high bids for tracts covering 433,823 acres and more than $135 million in total bids.

ConocoPhillips submitted the highest bid in the lease sale with a $16.7 million bid for Alaminos Canyon Block 431. Port Isabel Block 746 received the most bids of any block offered, followed by Alaminos Canyon Blocks 215, 258, 260 and 431.

The tracts offered are located from 9 to more than 250 miles offshore and in water depths ranging from 16 feet to over 10,975 feet. Of the tracts receiving one bid each, 25 were in water depths between 2,624 feet and 5,249 feet (800 to 1,600 meters), and 34 tracts in more than 5,249 feet (1,600 meters) of water received one bid each. Four tracts in water depths between 2,624 feet and 5,249 feet (800 and 1,600 meters) and eight tracts in greater than 5,249 feet (1,600 meters) of water received two bids.

Alaminos Canyon Block 644, situated in 10,229 feet (3,118 meters) of water, was the deepest block to receive a bid in the lease sale.

Lease Sale 238 offered all unleased areas in the Western Gulf planning area, with the exception of blocks in the Flower Garden Banks National Marine Sanctuary. Bureau of Ocean Energy Management (BOEM) estimates that 116 to 200 million barrels of oil and 538 to 938 billion cubic feet of natural gas production could result from the lease sale. The sale is the sixth sale held under the 2012-2017 Outer Continental Shelf Oil and Gas Leasing Program. The five previous lease sales under this program offered over 60 million acres for development and received $2.3 billion in bid revenues.

Wednesday’s sale saw a higher number of bids submitted and more companies participating compared with the previous Western Gulf Planning Area Lease Sale. Twelve companies submitted 61 bids in Lease Sale 233, which was held in August of last year. The sale, in which 20.7 million acres were offered, drew over $102 million in high bids for 53 tracts covering 301,006 acres, according to a BOEM Aug. 28 press release.  

While the historical trend of bidding on deepwater and Lower Tertiary blocks continued, participating companies showed interest in transboundary leases in the Port Isabel area and the southwestern portion of the Alaminos Canyon area, said Michael Celata, deputy director for the BOEM Gulf of Mexico Region, in a press conference with reporters.

Companies participating showed interest in leases located or partially local within 3 statute miles of the maritime and continental shelf boundary with Mexico, with 24 of the 167 blocks offered in this area receiving bids.

Interest in the transboundary area has grown following the recent reform of Mexico’s energy sector that opened the country to foreign and private oil and gas investment and the passage of the U.S.-Mexico Transboundary Agreement. Earlier this year, the U.S. Department of the Interior awarded to ExxonMobil Corp. the first Gulf of Mexico leases subject to the agreement.

Celeta credited the increase in bidding to more companies participating in the sale, including BP plc. BP couldn’t participate in the previous Western Gulf sale due to restrictions by the U.S. Environmental Protection Agency (EPA) on the company getting new federal contracts due to the 2010 Deepwater Horizon oil spill. EPA lifted that bar earlier this year, the New Orleans Times-Picayune reported March 19.

Other companies participating in the bidding included Chevron U.S.A. Inc., Exxon Mobil Corp., Shell Offshore Inc., BHP Billiton Petroleum (Deepwater) Inc., Anadarko US Offshore Exploration and Stone Energy Offshore LLC.

The top ten companies based on total number of high bids submitted are BP with 27 bids, BHP with 14 bids, ConocoPhillips with 10 bids, Venari Offshore LLC with six bids, and Chevron with five bids. The top 10 companies in the sale based on sum of high bids submitted are Chevron with five total high bids of $25.7 million, ConocoPhillips with 10 bids valued at $23.4 million, BP with 27 bids of $22.8 million, BHP with $21.8 million in high bids, and Venari with six total high bids valued at $5.1 million.

BOEM has 90 days to review the bids before leases are awarded to ensure the U.S. public receives fair market value, the agency said in a statement. Interior Deputy Secretary Mike Connor said in an Aug. 20 press statement that the sale underscored President Obama’s commitment to create jobs and home-grown energy through the safe and responsible exploration and development of offshore resources.  

“The Gulf of Mexico has been and will continue to be a cornerstone of our domestic energy portfolio, with vital energy resources that spur economic opportunities and further reduce our dependence on foreign oil,” Connor said.

Energy industry groups responded to the lease sale by pointing to the fact that only about 13 percent of the U.S. Outer Continental Shelf is open for oil and gas leasing. Officials with the American Petroleum Institute (API) and the National Ocean Industries Association (NOIA) called for the United States to seize the opportunity to further America’s energy renaissance by exploring and producing in new offshore areas, which include the U.S. Atlantic waters, the eastern Gulf, Arctic and Pacific waters.

“Today’s lease sale is a reminder that opening new areas to offshore energy exploration and production could create nearly half a million American jobs and raise tens of billions of dollars to help fund the government,” said Erik Milito, upstream group director of API, said in an Aug. 20 press statement. “The western and central sections of the Gulf of Mexico remain important areas for domestic oil and gas production, but they have been continually explored for decades while the vast majority of U.S. waters are kept off-limits.”

While some healthy bidding was seen in the typical Western Gulf sale, NOIA President Randall Luthi said the sale was not expected to fetch the “eye-popping” bids that typically accompany a Central Gulf sale. The sale did allow many smaller exploration and production companies to successfully compete for leases in both deep and shallow water, “keeping a diversity vital to the overall energy and jobs portfolio of the United States.”

“Each sale shows a commitment by the United States to continue to provide the opportunity, however, limited, to develop offshore oil and natural gas,” Luthi commented.

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