Gulf lease sale shows rising value of US offshore

— E&P companies that placed eight-figure bids for properties in Central Gulf of Mexico Lease Sale 206 weren't the auction's only beneficiaries. The record-breaking sale March 19, which captured a breathtaking $3.67 billion in total high bids -- the largest amount in the 54-year history of offshore US property leasing -- also shone new luster on the Gulf as a vital and prospective place to explore for oil and gas. And it showed just how far oil companies are willing to go to pick up choice deepwater acreage.

For years, US Gulf lease sales have been rather predictable, with total high bid amounts of a few hundred million dollars and an occasional eight-figure bid for an especially desirable tract. But with rising oil prices, larger corporate cash purses for exploration, and acreage being closed off throughout the world owing to resource nationalism, that has changed. When a flood of blocks won in big sales 10 years ago were relinquished recently and put back into the available pool, oil companies had the rare chance to grab vast amounts of acreage and apply new technologies to the blocks. They also had the ample funds needed for both tasks. The highest bid in Sale 206 was a mammoth $105.6 million, placed by a consortium of Anadarko Petroleum, Murphy Oil and Samson Offshore. That was an amount not seen for US Gulf tracts in decades, although it wasn't entirely unexpected. Not only that, but there was a surprising amount of bids in the $50 million to $100 million dollar range; in fact, the lowest of the sale's top-10 largest bids was still a whopping $68.5 million. Observers said going into the sale that they expected uber-bids to crop up for blocks situated near proven plays, recent discoveries or companies' existing prospective acreage. They also pointed to Alaska's recent Chukchi offshore sale, which netted one bid of $105 million and a high sale total of $2.66 billion, as indicative of oil companies' pre-sale intentions. And of course, there was the foretaste provided by the 2007 Central Gulf sale, with its $2.9 billion total in high bids which at the time was considered a landmark. Statistics tell the rest of the Sale 206 story. The auction's apparent winners -- "apparent" because the bids still must be rigorously analyzed by oversight agency US Minerals Management Service before the blocks are awarded -- paid much more for acreage this year than even last year. For example, companies forked over $1,540/acre for deepwater tracts in Sale 206, compared to $960/acre last year. For so-called mid-water blocks -- roughly 2,400 to 4,000 feet deep -- the payout was $724/acre this year versus $437/acre last year. And even for the aging Continental Shelf, which has taken a back seat to deeper waters in recent years, companies still were willing to shell out $262/acre against $228/acre in 2007. Will the trend of paying higher prices for blocks continue? There is still a large number of properties yet to be relinquished from the big Central lease sale in 1998, which could provide yet another wave of sizeable bids in the 2009 Central sale. And analysts say they believe there is still room for another monster sale, given the hunger for exploration and the emergence of independents as big deepwater players. One thing is certain: the US Gulf will be abuzz with E&P activity for many years to come.