By: Starr Spencer – S&P Global Platts – The twin challenges of low oil prices and uncertain demand recovery that has resulted from the coronavirus pandemic this year – which with more clarity might lift prices somewhat –did not appear to dampen operator enthusiasm for obtaining US Gulf of Mexico acreage during that region’s offshore lease sale Nov. 18.
The event, Sale 256, not only bested total high bids from the previous such event, taking in nearly $120.9 million in total high bids during the day’s auction, compared to $93 million captured during Sale 254 in March 2020 but showed deepwater is still alive and kicking from numbers of million- and multimillion-dollar individual bids.
The total sum of all bids – which included bids that apparently were not winning amounts – was $135.5 million, according to sale sponsor US Bureau of Ocean Energy Management records. About 94% of that amount was directed to tracts in waters 800 feet or greater.
In all, 23 participating companies placed bids on 105 bids across 93 tracts in Sale 256, against 84 bids on 71 blocks in the March 2020 sale.
“The goal for me [in Sale 256] was to achieve over $100 million,” Mike Celata, regional Gulf director for BOEM, said at a telephone press conference following the event that was live-streamed from BOEM offices in New Orleans.
As such, given the current “uncertain times,” with the pandemic and low oil prices potentially impacting bidding, topping that figure showed “consistency,” Celata said.
‘Huge’ resources in Gulf deepwater
“We still saw the same companies – BP, Shell, and Equinor – interested” in US Gulf acreage, he said. “We still have a huge amount of resources in deepwater and the Gulf … has a long future.”
The apparent high bid of the sale was an iota shy of $12 million, made jointly by Norway’s Equinor and Spain’s Repsol for an ultra-deepwater block in the remote Walker Ridge area of the Gulf, at water depths greater than 5,250 feet (1,600 meters).
“Apparent” means the awards will not be made for another 90 days as the BOEM evaluates all bids to assure they are fair market value – that the offer is consistent with the agency’s estimate of monetary value from hydrocarbons that is likely to be realized. Celata said BOEM is in the process of updating its resource base assessments of the US Gulf.
BP was the apparent winner of a block in the deepwater Green Canyon area of Louisiana, where it has its Mad Dog and Atlantis production platforms. The major offered $7 million for the tract, the second-highest bid of the sale, besting Chevron’s $2.8 million bid.
BP also was the apparent winner of several blocks in Mississippi Canyon, also off the Louisiana toe, where the company has its large Thunder Horse and Na Kika production platforms. One of the blocks, for $4.2 million, was the fifth-largest bid of Sale 256.
The increase in winning bids and number of bid-on tracts demonstrates the continued resilience of the US Gulf, Erik Milito, president of the National Ocean Industries Association, said in a statement. “Long-term projections still show rising energy demand, including for oil and natural gas,” Milito said.
Single bids accounted for the vast majority of 93 tracts that received offers, although two back-to-back leases in Mississippi Canyon had three bids and four bids respectively – mostly large experienced US Gulf operators.
Multiple bids for Mississippi Canyon blocks
Although they were not top-ten bids, Chevron was the apparent winner of Mississippi Canyon Block 382 with a $2.2 million offer, besting Hess and Occidental Petroleum for the tract, while BP was the apparent high bidder on MC Block 426 with $1.5 million, edging out Chevron, Occidental, and a group consisting of small private operators Beacon Offshore Energy Exploration, Ridgewood Energy, Red Willow Offshore, CSL Exploration, and Houston Energy.
Those blocks are more frontier acreage, as opposed to the short-term tiebacks or relatively quick and inexpensive hookups that many operators may have looked for around their existing production hubs, Celata said.
“I think what you’re seeing there is probably not only shallow Miocene but potential in the Mesozoic,” he said of the two blocks’ geology. “There were $1 million bids in that area. They are a little more prospective, so companies are looking at frontier prospects.”
Perhaps not surprisingly, Shell also bid heavily in the Alaminos Canyon area, where its Perdido Hub platform has produced for a decade in extremely remote waters of around 8,000 feet (2,450 meters) – the world’s deepest production spar and the second-deepest production hub after the company’s Stones development, also in the US Gulf.
In fact, deepwater was the clear winner of Sale 256. Of the 93 tracts that received bids in the auction, 39 were in fairly deepwater depths of 800-1,600 meters and 36 were in ultra-deepwater depths of more than 1,600 meters.
Just 12 blocks received bids in relatively shallow-water depths of 200 meters and less, while six blocks of intermediate water depths of 400-800 meters received bids.
Kate MacGregor, deputy director for the US Department of Interior who was in New Orleans to witness the sale and read many of the bids aloud, noted that deepwater discoveries can take “many years” to develop and put into production. She noted deepwater acreage carries primary terms of 10 years to drill, discover, and begin producing oil and gas.
“What we saw today [in Sale 256] is not just a snapshot of how companies are reacting to this time in this year, but seven to 10 years from now,” MacGregor said, adding the auction represented “a good sign of life” for US Gulf energy development.
“Offshore oil and gas production has grown under this administration” of President Donald Trump, she said, adding in 2019, about 683 million barrels of oil was produced, a record high, up from almost $619 million barrels in 2018.
Moreover, energy and mineral revenues from department-wide operations in the fiscal year 2019 doubled from the fiscal year 2016, generating nearly $12 billion, she said.