The results of the latest western U.S. Gulf of Mexico lease sale are the worst in terms of participants and bids since 1983, another sign that oil and gas companies are cutting back spending amid lower commodity prices as supplies outpace demand.
Only five companies submitted bids for 33 of the more than 4,000 unleased blocks that were offered, according to the U.S. Bureau of Ocean Energy Management. Bids totaled about $22.7 million.
Nearly three times as many companies submitted 93 bids for 81 blocks during the last western GoM lease sale about a year ago. Bids for that sale totaled about $135 million.
Back then the WTI price for a barrel of oil was about $95, compared to $41 today. The Henry Hub natural gas spot price was about $3.91/MMbtu. The current price is about $2.71.
“While this sale reflects today’s market conditions and the industry’s current development strategy, it underscores a steady, continued interest in developing deep water federal offshore oil and gas resources,” BOEM director Abigail Ross Hopper said. “The continuing drop in oil prices and low natural gas prices obviously affect industry’s short-term investment decisions, but the Gulf’s long-term value to the nation remains high.”
The blocks offered, which range in water depth from 5 m to 3,440 m, could have resulted in the production up to 200 million barrels of oil and up to 938 billion cubic feet of natural of gas, according to BOEM.
BHP Billiton Petroleum, Anadarko US Offshore, Ecopetrol America, BP Exploration & Production and Peregrine Oil & Gas placed bids.
BHP Billiton, which spudded the Shenzi North-2 and Shenzi North-ST1 wells this year in the GoM, submitted the most bids—26 for a total of about $16.3 million. The company was willing to spend the most money per block in the Keathley Canyon area, where it targeted deepwater blocks in depths of more than 1,600 ft. Its high bids ranged from about $600,000 to about $775,000. But the company, which holds interest in the GoM Atlantis and Mad Dog developments, submitted the greatest number of bids for blocks in Alaminos Canyon. The tracts are in the Lower Tertiary.
But Ecopetrol America submitted the sale’s highest bid—$2.8 million for an East Breaks block.
“The entire oil and natural gas industry, particularly the offshore segment, is understandably being very cautious about spending money,” the National Ocean Industries Association (NOIA) said in a news release. “The companies that did participate in this sale should be appreciated for their faith in a bright energy future and in the potential of the Gulf of Mexico in spite of discouraging market and other conditions.”
Expectations going into the Aug. 19 lease sale were not high.
“We expected a low turnout,” said Michael Celata, BOEM’s acting director for the GoM. He pointed out that last year 12 companies submitted bids during the western GoM lease sale. The western area typically attracts less interest than the central area. The last central GoM sale, which was held in March when oil prices were about $44/barrel, drew about $583 million in 195 bids from 42 companies.
“There were some positive results,” Celata said of the Aug. 19 sale, pointing specifically to BHP Billiton’s bids. “Companies are still providing plans. There is long-term development in deep water.”
Sales day statistics show deepwater blocks attracted the most attention. Bids totaling more than $13 million were submitted for 21 deepwater blocks. Interest was the lowest in shallow-water blocks, less than 200 m water depth, which had only two bids.
“Today’s lease sale was quick, quiet and small, but it is still a step in the right direction and will create jobs, boost economic activity, and strengthen U.S. energy security,” NOIA said. “We are hopeful that policy makers in Washington will acknowledge these benefits and validate their importance to our nation’s economic and energy health by opening up new offshore areas for exploration and development.”
Velda Addison can be reached at vaddison@hartenergy.com or via Twitter @veldaaddison.
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