Majors' bids still strong at US Gulf of Mexico lease sale amid worsening oil prices

Houston —

A US Gulf of Mexico lease sale on Wednesday held up pretty well, considering it was held amid one of the worst economic and oil price downturns in decades.

The auction captured lower total high bids, had fewer participants and generated half the actual bids of its predecessor event last August.

But the companies that bid made offers on par with recent US Gulf sales and even pulled a little stronger weight for amounts offered per acre than in recent sales, Mike Celata, regional Gulf director for the US Bureau of Ocean Energy Management said shortly after the auction.

"With all the uncertainty, it was unclear exactly what we were going to expect in this sale," Celata said. "I'm pleased with dollars bid per acre and think it bodes well for this and future sales."

The sale took in $93 million in high bids, a low not seen in three and a half years although total bid amounts, including apparently unsuccessful competitive bids, were $108.6 million.

By contrast, August's sale saw $159 million in high bids and $175 million in total bids.

In Wednesday's auction, 22 companies, mostly majors, placed 84 bids across 71 blocks, about half the amounts in August's sale where participantsplaced 165 bids for 151 tracts.

OPERATORS COULD HAVE WITHDRAWN BIDS

But in spite of the recent market turmoil and oil prices that continue to free-fall, Celata said he was not aware of any bids that were submitted and later withdrawn. Companies submitting bids in recent days and weeks had until Tuesday morning to withdraw them.

Troubled markets and lower oil prices may have had some role in the lower bid numbers, Celata said.

Majors dominated the sale, with Shell, BP, Chevron and Australia's BHP battling for choice deepwater acreage and showing particularly spirited bidding in the Green Canyon area offshore Louisiana, with multimillion-dollar offers in many cases.

The highest bid was $11 million, placed by BHP for a Green Canyon tract, vying with Shell, which bid $2.4 million.

Chevron placed a high offer of $7.3 million, also going head-to-head with Shell, for a tract in the prolific Mississippi Canyon area offshore Louisiana. Shell bid $3.5 million for that block.

BHP also bested Shell on another Green Canyon block, offering $5 million to its rival's $1.2 million, while Shell elbowed-out BP on two

blocks nearby, paying $4 million and $6 million, while BP put down just $600,630 for each.

Miocene-age geological structures that might yield discoveries were likely behind the contested high bids, Celata said.

Generally, producers that saw value were willing to pay up for it, analysts said.

"The ongoing volatility does not appear to have significantly affected bid strategy for those who participated," William Turner, an a Gulf of Mexico analyst at energy consultancy Welligence, said. Moreover, bid sums suggest that "long-term acreage valuations have not fundamentally changed (yet)."

And even in the maturing Green Canyon area, "where you're seeing some of these high bids, there hasn't been much penetration" from drilling although seismic may offer favorable hydrocarbon potential, Mfon Usoro, senior research analyst-Gulf of Mexico at energy consultancy Wood Mackenzie, said.

DEEPWATER A 'DRIVING FORCE' IN BIDDING

Despite lower oil prices, which have prompted dozens of upstream operators to slash capital budgets in the past couple of weeks, blocks receiving bids fetched normal and even favorable prices, he added.

"Deepwater was the driving force" in the sale, Celata said. "The price per acre was around $251, which is probably the highest since August 2017."

Average dollar amounts/acre for the entire sale, including shallower waters where far fewer bids were placed, was around $234, he said.

Just six bids were placed in federal waters of zero to 200 meters, and three bids in waters of 400-800 meters, sale records showed.

Few smaller or private players were present at the sale, but those that showed up placed a number of select offers, likely around existing fields, and sometimes paired up with each other to do so.

BP joined with smaller but aggressive Talos Energy on bids for five blocks, four of them apparently successful, in acreage in Green Canyon, continuing an apparent trend from recent auctions where majors pair up with much smaller but committed US Gulf players.

Notably absent from the sale were Hess, which earlier this year indicated it wanted to increase US Gulf exploration, Spain's Repsol,

perennial privately held Fieldwood Energy and relative Gulf newcomer Kosmos Energy which bought into the region in 2018.

In addition, Occidental Petroleum had suggested in recent weeks it might return to the Gulf to bid on leases as it did in the August 2019 auction but did not participate.