BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR
COOKIE NOTICE

Register with us today

and in less than 60 seconds continue your access to: Latest news headlines Analytical topics and features Commodities videos, podcast & blogs Sample market prices & data Special reports Subscriber notes & daily commodity email alerts

Already have an account?

Log in to register

Forgot Password

Enter your Email ID below and we will send you an email with your password.


  • Email Address* Please enter email address.

If you are a premium subscriber, we are unable to send you your password for security reasons. Please contact the Client Services team.

If you are a Platts Market Center subscriber (https://pmc.platts.com), Please navigate to Platts Market Center to reset your password.

In this list
Oil

US Gulf of Mexico Lease Sale 250 results modest, but raise hopes

Oil

Canada’s crude oil competitiveness in question as Parliament considers key legislation

Oil

Platts Rigs and Drilling Analytical Report (RADAR)

Commodities | Electric Power | Metals

Battery Metals Conference, Inaugural

Natural Gas | Oil

Interview: US 'shale revolution' to have big impact on Canadian oil, gas markets

US Gulf of Mexico Lease Sale 250 results modest, but raise hopes

(Revises prices, adds details)

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

The US Gulf of Mexico Lease Sale 250 held Wednesday generated healthy competition for deepwater acreage, although the results did little to change the outlook for production, at least until the next decade.

* Sale captures $124.7 million in high bids

* Chevron, Shell, BP dominate

* Mississippi Canyon spirited

The $124.7 million in apparent high bids captured by the sale, which saw 159 bids placed across 148 tracts, thinly exceeded the $121.1 million in Sale 249 last August.

But at least it was up, and may trend higher as more discoveries are made in the US Gulf, Mike Celata, regional director of sale sponsor US Bureau of Ocean Energy Management, said during a press conference following the sale.

Celata was optimistic about the potential for the Gulf in the future, pointing out that 72 bids were placed across 152 tracts in 2016, compared to 288 bids across 253 tracts last year.

"You've seen some large discoveries in the past year" in the Gulf of Mexico, notably Shell's Whale and Chevron's Ballymore that are sited at opposite ends of the region, he said.

In fact, the highest bid of Wednesday's sale -- $7 million, placed by Total E&P for a block in the eastern Mississippi Canyon area offshore the toe of Louisiana -- was apparently an offset block to Ballymore, he added.

On that tract, Total went head-to-head with Chevron, which bid $4.2 million.

SHIFTING FOCUS

Producers have increasingly been focused on onshore unconventional plays, lured by relatively quick returns and low breakevens, calling into question the outlook for longer-term conventional prospects.

Still, average breakeven oil prices for the Gulf of Mexico are around $53/b, down from roughly $70/b in 2014, according to S&P Global Platts Analytics.

"Onshore still appears to be the safest bet for the short-term," said Randall Luthi, president of the National Ocean Industries Association.

"That said, it looks like we're headed in the right direction -- the sale shows that companies have not given up on the GOM and deepwater sales," he said. "It would have been nicer to have a gigantic sale, but the market just isn't in the right direction."

Some in the oil industry have expressed concern about a potential shortage of new oil supply by the early-to-mid 2020s as the best areas of US onshore shale plays dwindle.

Wednesday's lease sale will give "companies an opportunity to start exploring and producing," Luthi said, noting an "increased intensity of competition in offshore."

Brazil is "openly courting companies to come back...Mexico has revamped their entire system and had a big deepwater sale a few months ago," he said. "The US just can't sit on their hands and assume it will be fine."

Platts Analytics analyst Sami Yahya saw the results as more modest.

"I don't think we will see a new age of resurgence in offshore investments at this time," he said. "We have roughly a dozen sizable offshore projects scheduled to come online over the next five years or so, and many of them were in some stage of development prior to 2014 when crude prices were higher."

BOEM believes production growth in the US Gulf, which was 1.56 million b/d in fourth quarter 2017 according to the US Energy Information Administration, will tick up for the next six years, Celata said.

The EIA sees Gulf of Mexico production growing to 1.85 million by second-quarter 2019.

NOTEWORTHY CLUSTERS

Sale 250 was essentially a majors' play, as larger international integrated operators accounted for all but one of the top 10 highest bids.

Chevron took honors for the largest sum of high bids, $29.5 million for 24 total high bids, while BP had the largest number of total high bids, 27, paying a cumulative $20 million for them. Shell was next with 16 total high bids and $22.9 million in total monies placed for them.

Sale 250 also saw a couple of noteworthy bid clusters. For example, Shell was the apparent high roller on the four tracts receiving bids in the remote northeast Alaminos Canyon area that borders Mexican waters. The company offered $6.5 million, $3.8 million, $2.1 million and $1.2 million, respectively, for the blocks.

Shell is a large player in Alaminos Canyon. It owns the Perdido Hub, the first producing platform in the US Gulf's Perdido Fold Belt trend which also extends into Mexico where it has drummed up bidding among international majors in the last couple of years.

However, Shell's Perdido Hub, its producing fields and its discoveries, including Whale, are all sited in southern Alaminos Canyon while its Sale 250 bids were farther north.

Shell could not be reached for comment.

"We think [those bids] were in the Lower Tertiary Trend, in an area surrounding blocks that BOEM has rejected in the past," Celata said.

In addition, BP appears set to walk away with nearly 20 blocks in the DeSoto Canyon area, where the so-called Norphlet Trend has put Shell on the map as the outstanding operator in that play with finds such as its Appomattox development.

But according to Celata, the specific area of BP's bids was not Norphlet but a geologically younger area of DeSoto Canyon.

"I don't think we've identified any discoveries in that area" where BP bid, he said.

"The biggest surprise came from BP who bid on 20 Block in DeSoto Canyon just one ridge over from Mississippi Canyon," said WoodMac analyst William Turner. "Given the lack of hardly any exploration activity in the area, they could be chasing a new play opener."

BP could not be reached for comment.

Much closer to shore, bidding in the Mississippi Canyon area was spirited, again with a number of multi-million-dollar bids including Total's $7 million bid.

Mississippi Canyon houses several prominent fields such as BP's Thunder Horse and Hess' Tubular Bells. A block further north of those fields was also the site of the Macondo oil spill in 2010.

Chevron also was apparently high bidder, at $4.2 million, on another block in southern Mississippi Canyon, while BP bid $2.9 million for a block not far from its giant Thunder Horse complex. Shell and ExxonMobil also made offers of just over $1 million apiece for blocks in the same southern area.

BOEM has 90 days to review the bids to assure what BOEM calls fair market value -- namely, that the federal government has received a sufficient monetary sum for hydrocarbons on the block. If not, BOEM will reject the bid. Typically, the agency rejects several bids in any given sale. --Starr Spencer, starr.spencer@spglobal.com

--Edited by Jeff Mower, newsdesk@spglobal.com