Bidders in U.S. Gulf of Mexico Lease Sale 253 on Aug. 21 appeared interested in what may be a new play area in that region's midsection while keeping leasing momentum in a separate potential new play concept they began pursuing in March 2018.
Even in a lackluster oil price environment in the $50s per barrel, U.S. Gulf of Mexico Lease Sale 253 turned in a solid $159 million in high bids, 35% less than the previous sale earlier this year but enough to make combined 2019 sale totals the highest since 2015.
"We're really pleased with the totals to see this upward trend [in high bid totals] during the last few years," Andrea Travnicek, deputy assistant secretary for land and minerals management at the U.S. Department of the Interior, said in a media conference call following the event.
In addition, notable deepwater discoveries this year and a high production level in the Gulf near 2 million barrels per day "bode well for the Gulf of Mexico for years to come," said Mike Celata, director of the U.S. Bureau of Ocean Energy Management's New Orleans office, which sponsored the auction.
The 165 bids across 151 blocks in Sale 253 were lower than the 257 bids across 227 blocks in the previous auction in March. But the twice-annual events combined show that on a full-year basis, the 378 blocks receiving bids in 2019 is also the highest since the 400 leased in 2014, Celata noted.
Likewise, total high bids in 2019 equal $404 million, the highest since 2015's $562 million, he said.
Some 27 exploration and production operators participated in Sale 253, about the same as the 30 that participated in March and in line with other sales in recent years.
In Sale 253, companies, particularly majors, appeared willing to bet on new play types for modest sums mostly under $1 million per tract that, if successful, could pay off in production in the next decade.
For example, BHP Group of Australia and Equinor ASA of Norway took turns bidding on and apparently winning more than 30 blocks between them in the Garden Banks and East Breaks area of the Central Gulf.
In particular, "East Breaks is pushing the boundaries of the Lower Tertiary, a little farther north and west" of the traditionally leased acreage in that area, Celata said. The Lower Tertiary play is in deep waters, at deep depths, he added.
In addition, BP PLC apparently won six tracts in the deep, remote Lloyd Ridge area on the edge of the Eastern Gulf, continuing to grab acreage in what may be a new deep pre-salt play that it and Royal Dutch Shell PLC began leasing in the March sale.
Shell and BP, meanwhile, separately continued to bid for and apparently win blocks in the emerging Norphlet play also along the Eastern Gulf rim. Shell's Appomattox field became the first Norphlet play field to come online in May.
High bidders in Gulf sales are not guaranteed winners. The Bureau of Ocean Energy Management has 90 days to evaluate offers to assure the bonus paid to the government is large enough to compensate value of estimated hydrocarbon reserves. The leases should be awarded later this year.
While the vast majority of Sale 253 bids were under $1 million, and sometimes well under that line, the auction had plenty of seven-figure offers.
One was even larger. Far and away, the $22.5 million that BHP offered for a block in the prolific deepwater Green Canyon area offshore Louisiana was the largest bid in the auction.
"This block had been bid on and rejected by BOEM in each of the last four [lease sales]," said William Turner, an analyst for upstream consultancy Welligence. "Clearly there is something interesting there."
The second-highest was $6.7 million by Chevron Corp. for a deepwater lease in the prolific southern Mississippi Canyon area, besting Shell's $3.1 million offer for the same tract.
Also, Shell offered a pricey $5.6 million for Alaminos Canyon Block 341, which is sited near its Blacktip discovery announced in April. The find, in a remote deepwater area of the southern U.S. Gulf, is 30 miles from the major's Perdido field and producing hub.
Blacktip also is situated about 15 miles west of AC 341, which Shell apparently won Aug. 21. The tract is adjacent to another block, AC 340, for which Shell bid $1.2 million, also an apparent win. Shell was the sole bidder on both tracts.
In another notable feature of Sale 253, Anadarko Petroleum Corp., which was acquired earlier this month by Occidental Petroleum Corp., placed bids on at least a dozen blocks, mostly in the Keathley Canyon area where Anadarko had owned the Lucius producing hub. Those assets passed to Occidental in the acquisition.
Many U.S. Gulf observers have wondered if Occidental, which has not operated in that arena for a dozen years but instead focused on its onshore Permian Basin unconventional and CO2 operations in the U.S., will keep the Gulf assets or sell them to repay debt from the purchase.
"Bringing new growth opportunities into the portfolio is important regardless of [Occidental's forward plans for the U.S. Gulf unit]," Turner said.
