Central Gulf Sale 208 proves comparisons are odious

— Central Gulf of Mexico Lease Sale 208 in New Orleans this week was dealt an undeserved bad rap this week from Wall Street, which seemed disappointed in its mere $703 million in total high bids compared to the staggering all-time record $3.67 billion in last year's Central Sale.

But analysts -- and perhaps industry in general -- were probably too spoiled by landmark $147/barrel oil in mid-2008 and all that accompanied it to notice the sale's virtues. It bears mentioning that last year's auction, and its $2.9 billion predecessor in 2007, were extreme events -- and so was $147/b oil, at least by today's standards. We're in the middle of a mighty scary recession and credit meltdown that have no end in sight. Given those bogeys on top of chainsawed E&P budgets, $703 million ain't exactly chump change. In fact, considering all the sale's constraints, it was a pretty healthy wad of cash. Let's compare that supposedly meek $703 million to more normal years. For example, the Central Gulf sales of 2006, 2005 and 2004 captured total high bids of $588 million, $354 million and $369 million, respectively. Those were years when industry was abuzz with optimism and oil prices were on the way up -- and generally were higher than they are now. Compare that to the economic crisis of a decade ago, which harnessed sale totals for years. The 1998 sale took in a showy $810 million in high bids -- but that was just a couple of months after oil had fallen to an alarming level under $17/barrel, and industry did not react as quickly to adverse conditions as now. But 1999 was telling: the sale delivered just under $172 million in total high bids. There wasn't much relief in 2000, when that year's Central Gulf sale captured $300.6 million. Things picked up in 2001 with high bids of $505.5 million, but 9/11 and the dot-com bust pulled down totals again in 2002 to $363.2 million and $315.5 million in 2003. Going back even further, Central sale totals of the late 1980s and early 1990s, after the collapse of oil prices at that time, hovered around the same levels as 1999-2002. In fact, total high bids for all Central sales from 1986 through 1996 were each less than $525 million, and most were far less. That virtually enthrones 2009 as one of the strongest sales by far of the last 24 years. Another measure of Sale 208's valiant showing is the average bid per acre. Again disregarding the 2007-2008 outsize years, Sale 208 high bidders paid about $373/acre for 1.8 million collective acres. That is more than the roughly $280/acre paid in 2006, when oil companies placed high bids totaling $588.3 million for about 2.1 million acres. And it is higher still than the $166/acre in the 2005 sale, $132/acre in 2004 and $112/acre in 2003. But numbers do not take into account other hurdles for participants such as declining prospect quality, which sale sponsor US Minerals Management Service openly acknowledges, or recent higher block rents. Chris Oynes, MMS associate director for offshore energy minerals management, called this year's crop of tracts "the second or third order of prospects." He meant that many deepwater tracts offered in Sale 208 were first acquired in the large 1997 and 1998 auctions but returned after 10 years to MMS for resale, indicating their original tenants may not have seen a compelling reason to drill them in that time. Of course, Wall Street's comparisons of Sale 208 with the previous mammoth year do show the extent of industry's slump since its gravy days just months ago. But some common sense is in order. Given its many uphill battles, the 2009 Central auction should be remembered as The Little Sale That Could.