If the Central Gulf of Mexico Lease Sale 185 is any indication, operator interest in the deepwater Gulf of Mexico is declining. An alternative explanation is that operators have their hands full with current deepwater holdings in the region, and are reluctant to take on additional obligations. The overwhelming majority (about 67%) of blocks receiving bids in the U.S. Minerals Management Services Central Gulf Sale 185, held in March, lie in less than 200 meters of water. Blocks in 400 meters of water and greater, the kick-in threshold for the MMS' Deepwater Royalty Relief measures, accounted for 31.6% of the sale. Not only did interest in deepwater acreage decline, this year the money dried up as well. Although blocks in more than 800 meters of water consistently make up only about one-third of any given Central Gulf lease sale, the money spent to acquire these blocks routinely accounts for greater than 50% of the sale, and in some cases as much as 75%. In Sale 185, however, these blocks were about one-quarter of those receiving bids, and the money spent to acquire them was only about one-third of the sale's total. Overall, the federal government received 793 bids on 561 blocks from 74 companies in Sale 185, an increase of 96 bids from last year's Central Gulf sale, which garnered 697 bids on 506 blocks. Still, Sale 185 attracted total high bids at $315.5 million, while high bids in last year's sale totaled $363.2 million. This year, many of the deepwater players concentrated their efforts on filling positions around existing lease-holdings. 1BHP Petroleum { placed high bids on 17 deepwater blocks, all of which complement its leasehold positions in existing play fairways. BHP was also the sale's most active lead bidder, thanks mainly to 33 apparent high bids on shallow-water blocks that it placed in partnership with 1Newfield Exploration ?Ó . The dramatic shift in interest, and to a certain extent capital, from deepwater acreage to shallow-water parcels is perhaps because companies have a vast amount of deepwater acreage inventory to digest, and are running out of time to do so. In the Central Gulf of Mexico alone, 30 leases in 400 or more meters of water will expire by year-end if they are not drilled. An additional 27 will follow in 2004. The number of undrilled Central Gulf leases set to expire in 2005 jumps to 112, followed by 351 in 2006, 458 in 2007 and 436 in 2008. Just for acreage in the Central Gulf of Mexico region, operators must make a drill-or-relinquish decision on more than 1,400 blocks in the next 5.5 years. Digesting sales past is taking its toll on the appetite for sales present.

Comments