US GoM Lease

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Industry looks to Gulf of Mexico Lease Sale 253 for signs of offshore resurgence

 

 

Total 2019 sales should exceed 2018 totals: BOEM

Recent operators' optimism for US Gulf remains high

Crude holding above $50/b breakeven

 

The oil and gas industry will be closely watching this week's US Gulf of Mexico lease sale to determine if lower oil prices will slow the renewed optimism in offshore projects, sources said Monday.

 

ICE Brent futures have been lingering around $56-$60/b so far in August, down from the $65-$70/b level seen heading into prior sale held in March. The March auction pulled in $244 million.

Regional Gulf director for the US Bureau of Ocean Energy Management Mike Celata was hesitant to predict that similar interest would be seen in this Wednesday's auction.

"If you look at the whole year in perspective, with both sales added together, I think the number of tracts bid on, and the total sum of high bids, will be higher in 2019 than in 2018," Celata, whose agency will sponsor the sale, said Monday.

The total amount of high bids for the two 2018 sales was about $303 million. To exceed that total, Sale 253 would only need to capture $60 million in high bids.

However, the $244 million in March 2019 compares to several preceding auctions of the last two years which netted less than $200 million in high bids. As such, Sale 252 in March was considered a sign of renewed interest in the Gulf, where activity has been spotty in recent years as oil prices have remained at relatively low levels.

In that auction, 227 blocks received a total 257 bids. By contrast, two of the previous three sales before that pulled in bid numbers in the 100s.

AUGUST SALES HISTORICALLY LOWER

August sales historically have pulled in lower numbers in every category than March sales. And, even now that every Gulf of Mexico sale includes all available acreage in the region -- as opposed to decades of previous auctions that featured only Central acreage offshore Louisiana in March and Western or offshore Texas acreage in August - "you still see that," Celata said.

And while crude prices are lower from March, production costs have fallen, and US Gulf operators claim they are making acceptable and sometimes even marked profits from new discoveries made near existing production hubs. Many large operators such as Hess Corp and Murphy Oil are ramping up that activity.

"We estimate breakevens in the Gulf of Mexico at around $50/b WTI equivalent," S&P Global Platts Analytics analyst Rene Santos said. "Therefore, current prices allow for continued investment in new projects."

NYMEX front-month crude settled at $56.21/b Monday.

NEW DISCOVERIES COULD SPARK MORE BIDDING

In addition, there have been a number of US Gulf deepwater discoveries in recent months that could encourage bidding in nearby available leases.

Shell discovered Blacktip, a deepwater find located 30 miles from its Perdido producing hub and its Whale discovery, in April. W&T Offshore found Gladden Deep in the southern Mississippi Canyon area offshore Louisiana in June, while Talos Energy announced Orlov and Bulleit, both in the prolific Green Canyon area also off Louisiana, just a few weeks ago.

Also, since the last Gulf auction, Shell's Appomattox field came online in May. It represents the first production from the emerging Norphlet play which the major pioneered, and could drum up some interest, observers say.

And on the rank exploration side, Shell and BP demonstrated in the March 2019 sale that they may be mulling a new play in the little-drilled Lloyd Ridge area of the Gulf. In turn, that could spark interest from other companies that, at a time when more companies have a little more excess cash flow than in the last few years, may want to invest a little more money in an emerging frontier.

That kind of exploration was neglected in the lean years of 2015-2017. But as oil appears to be holding above $50/b, and many companies are comfortably hedged and have pushed their breakeven prices down in the last few years, the US Gulf, which at intervals has been called "The Dead Sea," is slowly coming back to life.

"I see no signs that [Sale 253] is going to be much different from recent lease sales," Santos said. "Since it is an area-wide lease sale ... I believe it will attract bids near existing fields and also in areas with no production but with interesting prospects."

 

 

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Firms submit $159 million in high bids in Lease Sale 253

The US Bureau of Ocean Energy Management reported that its region-wide Gulf of Mexico Lease Sale 253 received 165 bids from 27 companies on 151 of the 14,554 blocks offered, resulting in a total of $159 million in apparent high bids.

 

The US Bureau of Ocean Energy Management reported that its region-wide Gulf of Mexico Lease Sale 253 received 165 bids from 27 companies on 151 of the 14,554 blocks offered, resulting in a total of $159 million in apparent high bids. The sale was held Aug. 21 in New Orleans.

The total amount bid was less than region-wide Lease Sale 252 held in March when BOEM received 257 bids totaling close to $244.3 million in apparent high bids for 227 tracts

The most sought-after acreage during this most recent sale was in the deepwater and ultradeep water, as blocks in 800-1,600 m of water received 68 bids and blocks in more than 1,600 m of water received 49 bids. The deepest block receiving a bid was Lloyd Ridge Block 149 in 2,979 m of water.

Equinor Gulf of Mexico LLC submitted the greatest number of high bids, submitting 23 apparent high bids for a total of $16.8 million. BP Exploration & Production Inc. came in second with 21 total apparent high bids worth $14.69 million.

Based on the sum of high bids submitted, BHP Billiton Petroleum (Deepwater) Inc. was at the top of the list with 20 total high bids totaling $41.5 million. Anadarko US Offshore LLC placed second on that list with 14 apparent high bids for a total of $23.4 million. Chevron USA Inc. came in third with $22.6 million for 17 high total high bids.

Mississippi Canyon Block 253 received the most bids with 4 submitted. The highest bid on a block came from BHP Billiton Petroleum. The company—the only firm to submit a bid on Green Canyon Block 124—bid $22.5 million.

The high bid comes after bids for the block were previously rejected by BOEM’s fair market value process, said Mike Celata, director of BOEM’s New Orleans Office, in a press call Aug. 21 to announce sale results.

BOEM reviews all high bids received and evaluates all blocks using either tract-specific bidding factors or detailed tract-specific analytical factors to ensure that FMV is received for each OCS lease issued.

“Overall, we had 15 rejects from the past that were bid on in this sale,” said Celata, resulting in a $47 million return. The FMV process can sometimes draw additional interest by companies looking at potential opportunities, he said.

While companies look for opportunities near existing fields, they’re also looking for future opportunities, Celata said. In the lower Tertiary East Breaks, companies are pushing boundaries. In Lloyd Ridge, where companies have historically drilled in shallow Miocene, Celata pointed to the potential for presalt plays on the edge of DeSoto Canyon as the Norphlet geologic play develops.

Offering $6.71 million for Mississippi Canyon Block 937, Chevron USA Inc. submitted the second-highest single bid of the sale. Shell Offshore Inc. also was among the top-ranked companies submitting single-highest bids, with a bid of $5.6 million for Alaminos Canyon Block 341.

Lease Sale 253 comprised about 14,554 unleased blocks in a range of 3-231 miles offshore across the gulf’s western, central, and eastern planning areas in 9-11,115 ft of water.

This was the fifth offshore sale in the Department of Energy’s Outer Continental Shelf 2017-22 program, which plans a total of 10 sales.

BOEM previously said the Lease Sale 253 could net 48 billion bbl of undiscovered technically recoverable oil and 141 tcf of undiscovered technically recoverable gas.