GoM Lease Sales Garner $872 Million In High Bids

Results of the latest Gulf of Mexico (GoM) lease sales reveal that interest remains high in deepwater, but shallow water is not being overlooked as the so-called keystone of the U.S. energy portfolio captures a combined total of about $872.1 million in high bids.

Central Sale 231 garnered 380 bids on 326 blocks from 50 companies. Most of the bids were on tracts with water depth of 2,625 feet or greater, according to presale statistics.

The highest bid—about $68.8 million for Atwater Valley Block 198—was submitted by Freeport-McMoran Oil & Gas (NYSE: FCX), which beat out five other companies for the rights to drill the tract. Other blocks with high interest were Mississippi Canyon Block 475 and West Delta Block 41, which each had four bids.

Freeport-McMoran came out on top of the lease sale, winning 16 of its 17 bids. The Phoenix-based company spent $321 million, which is more than three times as much as the next biggest spender, Chevron Corp. (NYSE: CVX).

Cobalt International Energy LP (NYSE: CIE) was an aggressive bidder, winning 44 of 46 offers worth $26 million. Another active company was soon-to-be acquired EPL Oil & Gas Inc. (NYSE: EPL), which made 22 offers in the lease sale.

Last week, Energy XXI (Bermuda) Ltd. (NASDAQ: EXXI) announced it will buy EPL in a $2.3 billion merger. The merger will make EXXI, which also made eight bids in Central GoM sale, the largest public, independent producer on the GoM shelf.

Bureau of Ocean Energy Management (BOEM) estimates that the Central GoM sale could result in the production of up to 1 billion barrels (bbl) of oil and 4 trillion cubic feet (Tcf) of natural gas.

However, this round of lease sales brought mixed results. While Central Sale 231 generated much interest, although slightly fewer companies participated than in previous sales, Eastern Sale 225 attracted no bids, and only one company submitted bids for Western Sale 233 in the U.S.-Mexico transboundary area.

“From everything that I can see there is no shortage of dollars and investors that are interested in the Gulf of Mexico,” BOEM GoM Regional Director John Rodi said. “All indications are … that the Gulf of Mexico is a very great place to do business in terms of the economic benefit that might exist. It’s just an expensive place to do business.”

BOEM Director Tommy P. Beaudreau pointed out the trend of companies targeting deepwater and extremely prospective areas, which can present challenges.

“We’re seeing both a focus on certain tracks in certain areas but also a focus by certain companies with the wherewithal to make the investment and do the exploration and development necessary with respect to the deepwater areas,” Beaudreau said. “But something that shouldn’t be overlooked is we still have a number of bids and fairly robust bidding in the shallow-water shelf with a lot of traditional gulf operators. We do see some trends, but we also see a continuation of the traditional activity on the Gulf of Mexico shallow-water shelf.”

Transboundary area opens

In the U.S.-Mexico transboundary area, Exxon Mobil Corp. (NYSE: XOM) was the lone bidder, submitting three bids total on three blocks. The total amount of high bids was about $21.3 million, and the highest bid was for Alaminos Canyon Block 954 for about $12.9 million.

The sale came after the U.S. and Mexico entered a transboundary agreement late last year that “removed uncertainties regarding the development of resources within this boundary making nearly 1.5 million acres of the U.S. Outer Continental Shelf more accessible for exploration and production activity, Jewell said. “The agreement also opens up resources in the western gap that was off limits to both of our countries under previous treaties that imposed a moratorium along the boundary.”

Bids from this sale had been held unopened since 2013 until the agreement was passed. ExxonMobil is free to proceed with exploration plans, Beaudreau said. However, the agreement details procedures the company must follow, along with companies in Mexico, if seismic and other geological data analysis reveal a transboundary reservoir is present.

“Today’s lease sales will help increase domestic energy production, reduce our nation’s dependence on foreign oil and incentivize early production on the leases industry may acquire from this sale,” Rodi said. “As the keystone of the nation’s energy portfolio, the gulf holds vital energy resources whose responsible and orderly development can continue to generate jobs and spur economic opportunities for gulf-producing states as well as reduce the nation’s dependence on foreign oil.”

He added that the GoM accounts for 25% of U.S. domestic oil and 11% of domestic gas production.

“The Energy Information Administration projects offshore production will continue to grow from 2015 through 2040 as the pace of development quickens and new large projects predominately in the deepwater and ultradeepwater areas of the Gulf of Mexico are brought into production,” Rodi continued. “It is clear that the industry is moving forward deploying the latest technology to help develop our nation’s offshore oil and gas resources.”

BP makes a comeback

The sale also marked the return of BP Plc (NYSE: BP) to bidding for federal contracts and leases following a 16-month suspension related to the Deepwater Horizon accident and oil spill. BP announced last week that it had entered an administrative agreement with the U.S. Environmental Protection Agency (EPA) resolving matters concerning the suspension and debarment following the accident.

As part of the five-year agreement, BP said it agreed to safety and operations, ethics and compliance, and corporate governance requirements, including those in the remedial order resulting from BP’s 2012 plea agreement with the U.S. Department of Justice and Final Judgment Order with the U.S. Securities and Exchange Commission. The company also agreed to drop the lawsuit it filed against the EPA in federal court in Texas claiming improper statutory disqualification and suspension.

BP bid on 31 blocks in the Central GoM. Ten were in the Green Canyon leasing area; eight in the Mississippi Canyon area; eight in the Atwater Valley area; three in the DeSoto Canyon area; and two in the Keathley Canyon area.

Results showed BP was the high bidder on 24 blocks, and the sum of the high bids was about $41.6 million.