The first US Gulf oil and gas lease sale in 16 months March 29 attracted multimillion-dollar bids for deepwater leases in a likely burst of renewed enthusiasm and profitable opportunities for exploration that may result in more production later in the decade.
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US Gulf of Mexico federal Lease Sale 259 also captured a couple of eight-figure bids in deep and ultra-deep waters, including a nearly $16 million offer by Chevron that was the auction's largest single bid.
That offer, for a tract in the remote Keathley Canyon area of the southwest US Gulf, came alongside another large Chevron bid of nearly $11 million for a block in the more centrally located Green Canyon area offshore Louisiana. The major has large producing fields in that region and also is developing the large Anchor project that includes new production infrastructure.
Chevron's $16 million bid for the Keathley Canyon lease bested rival bidder BP, which bid $4 million for it.
The sale—the first since November 2021—captured high bids of $264 million and total bids of $310 million, sizably more than the roughly $192 million in high bids attracted by the former auction, Sale 257, according to tabulations by auction sponsor the US Bureau of Ocean Energy Management.
"It looks like a return to pre-COVID levels of activity and competitiveness," S&P Global Commodity Insigtts US Gulf analyst George Laguros said . "Not getting back to the pre-2015 frenzy but a solid improvement."
Upstream companies placed a total of 353 bids on 313 federal offshore blocks in Sale 259, more than the 317 bids made on 308 blocks in November 2021.
Keathley Canyon area attracted pricey bids
Overall, the deepwater remote Keathey Canyon region performed well in Sale 259, attracting many multimillion-dollar bids as BP wrested an adjacent block in that region from competitor Chevron with a high bid of $3 million. The two companies also went head-to-head for other deepwater Keathley Canyon blocks with apparent high bids of $3 million-$6 million.
Majors appeared to steal the show with the highest bids on the highest number of blocks.
"Majors participated in a big way ... bidding on 70% of the 313 blocks and their high bids were 77 % of the total," said Wood Mckenzie principal research analyst Justin Rostant.
Rostant said Chevron was the most aggressive bidder with $104 million in high bids, more than all the other majors combined.
Shell, for example, apparently was the apparent high bidder for one of two highly contested blocks that received four bids in each area—the company offered $3 million for it—and was also the high bidder on a number of other leases for which it made smaller offers.
Shell also was the sole bidder on five lower Alaminos Canyon blocks, near its Perdido hub development although its bids were all less than $1 million apiece.
More bids and competitive bidding typically kindles exploration-and-production operators' enthusiasm for promising acreage, and at least at current oil prices, interest in the region appears to be holding strong. That could result in a few more wells drilled in the region this year than the 18 in 2022, analysts said.
And if oil prices continue in the $70s, which is still well above breakeven levels in the low to mid-$50s/b, that could be a green light for more drilling on coveted blocks on this and other US Gulf auctions since upstream operators typically want to drill "hot prospects" relatively quickly for a look at the geology. That, and a positive view of the US Gulf which not only offers good economic returns but low-carbon emissions, could result in more drilling—especially around existing production hubs that allow relatively quick production and payouts.
Going into Sale 259, analysts said they expected bid totals that were at least on par with the November 2021 sale, given the relatively long period between the two auctions. Typically there are two US Gulf lease sales per year, one in March and the other in August, although the second one for 2023 is scheduled for September.
It was also believed that the Biden Administration's delay in releasing a firm five-year oil and gas lease sale plan may also have drummed up more interest in lease sales that have already been approved. Interior Secretary Deb Haaland recently said, however, that a final five-year plan was expected in September.
Unusual bidding features
Sale 259 also contained some unusual bidding features.
In addition to making many of Sale 259's highest offers—it also made a $7 million offer for another Green Canyon block—Chevron uncharacteristically bid on 29 blocks in remote Atwater Valley and was the sole bidder for those blocks.
Also, following its own similar bidding pattern in the November 2021 sale, ExxonMobil bid for nearly 70 shallow-water blocks in the western Gulf along the Continental Shelf and was the sole bidder for all but one of them. The major similarly bid for, and won, 94 blocks in Sale 257, which it will use for its carbon capture and storage projects.
BP, in addition to apparently winning a number of deepwater blocks in the Mississippi Canyon where its Thunder Horse development is sited, and also in Keathley Canyon, made five offers for what may be the most frontier acreage that received bids—in Lloyd Ridge. That is located at the southeastern edge of currently leasable US Gulf areas.
"The blocks BP picked up in Lloyd Ridge fit within the 11 blocks they already have there," Laguros said. "It's the southeast end of the northwest/southeast Norphlet trend that starts with Shell's Appomattox/Vicksburg" fields."
US Gulf of Mexico regional director James Kendall read about a third of the Sale 259 bids at the auction, which was livestreamed from BOEM's New Orleans offices. National BOEM director Liz Klein also was there to read another portion of the offers.