Signs of less than favorable market conditions are evident in the results of the latest central U.S. Gulf of Mexico lease sale, which brought in half the number of bids and fewer participating companies compared with the previous sale in this region about a year ago.

But the approximately $583.2 million in bids, mostly for deepwater acreage and highly sought-after Green Canyon blocks, still shows the GoM is still of interest to the oil and gas sector—even with oil prices trading at historic lows amid ample supplies.

“I don’t think this was a disappointing sale. I think it was what we expected given oil prices are obviously lower than they have been in the last six years. That has an impact,” Abigail Ross Hopper, director of the Bureau of Ocean Energy Management, said Wednesday on a media conference call. “As companies look at their revenues and their plans for the future, they make perhaps different decisions than they would have a little while ago when the market was at a different place.”

Sale 235 garnered about $538.8 million in high bids, far less than the $850.8 million in high bids for central GoM Sale 231 on March 19, 2014. Back then, the oil price was about $100/bbl, and 50 companies made 380 total bids on the 326 of the more than 7,500 blocks offered.

Wednesday’s sale captured participation from 42 companies, which placed 195 total bids on 169 of the more than 7,788 blocks offered.

“We’ve had a downward trend for several years now, but we’re not too concerned about that because a lot of the interest in recent sales is in deep water,” said John Rodi, GoM regional director for BOEM. He added that the high costs associated with deepwater drilling limit the number of players, so the turnout was not unexpected. “The 42 participants is not a bad thing at all.”

Unlike the previous central sale in which blocks in water depths of less than 200 m (656 ft) attracted the most bids—though not the highest dollar amount—deepwater overwhelmingly prevailed this time. Sale day statistics show 64 blocks in water depths of greater than 1,600 m (5,249 ft) received bids worth a total of about $334.9 million; whereas, 45 blocks with water depths of less than 200 m received bids, which totaled about $13.6 million. Cobalt International Energy cast the lone bid on the deepest block—Lloyd Ridge Block 454 at a depth of 3,018 m (9,902 ft).

(Source: BOEM)

Oil and gas companies were the most interested in Atwater Valley Block 153, Green Canyon Block 804 and Green Canyon Block 364, which is in the Lower Tertiary in the Wilcox Sands.

“Anchor is one of the most recent discoveries in that area. So it is entirely possible that Anchor and other recent discoveries there are indeed one of the influences in that particular area,” Rodi said of Green Canyon. The mid- to lower-Micone Atwater Valley block’s close proximity to the Vito discovery also may have influenced bidders.

The sale activity reflects the oil price downturn and perhaps regulatory upturn, the National Ocean Industries Association (NOIA) said in a statement released by its spokeswoman Nicolette Nye.

“The price of oil is about half of what it was at this time last year, and the number of bids as well as the number of tracts bid on are also about half of those in last year’s central sale,” NOIA said. “The good news is that there were several very large high bids, which demonstrates industry's continued commitment to investing in the Gulf of Mexico, particularly in deep water, even in times of low oil prices and more stringent regulation. This commitment in such tough times bodes well for a potential Atlantic sale.”

Houston Energy and Red Willow Offshore jointly placed the highest bid—about $52.2 million on Walker Ridge 107, beating out one other bidder.

But at $78.6 million, Chevron pledged the most money on blocks with 11 total high bids. It was followed by Red Willow Offshore and Exxon Mobil Corp., with bids of about $59 million and about $53 million, respectively.

In addition, Statoil was among the top high bidders, with 14 total high bids for a total of about $51 million.

“The acreage high bid today, completes our ownership of the Monument prospect, brings additional prospects in to our portfolio and strengthens our position in prioritized areas of the U.S. Gulf of Mexico,” Jez Averty, Statoil’s senior vice president, exploration for North America, said in a prepared statement.

(Source: BOEM)

Also, notable, according to the officials, was that about half of bids received were for newly available blocks—blocks that became available following the last sale because they either expired at the end of their primary lease term, were relinquished by a company before the primary lease term ended or production stopped and the lease was terminated.

The sale offered 7,788 unleased blocks, covering about 41.2 million acres, in water depths ranging from 3 m (9 ft) to more than 3,400 m (11,115 ft). The next GoM lease sale is scheduled for August. Sale 246 will offer about 4,000 blocks in western GoM.

Contact the author, Velda Addison, at vaddison@hartenergy.com.

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