Latest Gulf of Mexico Lease Sale Generates Moderate Bidding Interest

BP, which holds interests in four production platforms including Mad Dog (pictured), submitted the most high bids in GOM Lease Sale 250, held on 21 March. Source: BP.

The largest lease sale in the history of the US Gulf of Mexico (GOM) drew a lukewarm response from industry bidders, as a small percentage of available blocks received winning bids well below past price averages. 

Held in New Orleans on Wednesday, 21 March, Lease Sale 250 was the second offshore sale held under the National Outer Continental Shelf Oil and Gas Leasing Program (National OCS Program) for 2017–2022. Under this program, 10 region-wide lease sales are scheduled for the GOM, where oil and gas infrastructure is well established. Two lease sales will be held each year and include all available blocks in the combined Western, Central, and Eastern GOM planning areas.

The lease sale included 14,474 unleased blocks. Excluded from the sale were blocks subject to the US congressional moratorium established by the Gulf of Mexico Energy Security Act of 2006; blocks that are adjacent or beyond the US Exclusive Economic Zone in the area known as the northern portion of the Eastern Gap; and whole blocks and partial blocks within the current boundary of the Flower Garden Banks National Marine Sanctuary.

Of the unleased blocks made available, only 148 received bids, with the high bids worth a combined $124.7 million. Most of the blocks receiving bids were either deepwater or very shallow water: 59 blocks with bids were in depths of 1600m or more, and 43 blocks of 200m or less received bids. The bulk of these blocks received one bid. Mississippi Canyon 509 was the only block to receive three bids. Total won it with an offer just north of $7 million, the highest individual bid placed on a block in the lease sale.

The Mississippi Canyon was one of the few active areas in the sale. Chevron paid about $7 million for the rights to three deepwater blocks in the area: MC 740, MC, 786, and MC 241. LLOG won the rights to MC 509 for $4.1 million, and BP paid $2.9 million for the rights to MC 564. Other high bids came in the Alaminos Canyon near south Texas and the Green Canyon.

The US Interior Department set a 12.5% royalty rate for leases in 200m or less water depth and a royalty rate of 18.75% for all other leases issued under the sale. The department had previously proposed to implement the lower royalty rate for deepwater leases but withdrew the proposal prior to the sale.

In January, Interior Secretary Ryan Zinke announced a draft proposed program for a new national OCS program to last from 2019 to 2024. This program would replace the current OCS program, which limited drilling in the Arctic Ocean and other US federal waters. If implemented, the new program would open up 25 of 26 planning areas over the course of 47 lease sales, with the lone exception being the North Aleutian Basin offshore Alaska, which was removed from consideration for future offshore leasing by former US president George W. Bush. As a comparison, the US held 11 GOM lease sales during the 8-year administration of Barack Obama (2009–2017).

The 60-day public comment period for the draft ended on 9 March. After considering all public comments received in response, the US Bureau of Ocean Energy Management (BOEM) will develop and publish a proposed program for public comment later this year, followed by the proposed final program.

Top 10 Companies Based on Total Number of High Bids Submitted

Company

Total High Bids

Sum of High Bids

BP

27

$20,068,202

Chevron

24

$29,448,882

Shell

16

$22,931,808

Total

9

$15,106,525

Hess

7

$4,524,223

Byron Energy

7

$2,610,082

Arena Energy

7

$1,209,926

SDB Offshore

7

$1,048,320

W&T Offshore

7

$797,700

EnVen Energy Ventures

5

$4,662,153

Latest Gulf of Mexico Lease Sale Generates Moderate Bidding Interest

Stephen Whitfield, Senior Staff Writer

22 March 2018


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