Independents Big Players at Sale

Smaller Players Dive Into Deep End of Gulf

Independent oil companies dominated the recent Western Gulf of Mexico lease sale — no surprise there, but these independents aren't playing it safe in the tried and true shallow shelf.

Results of the lease sale indicate that companies are going deep — both geologically and in water depth.

The Minerals Management Service's Western Gulf Sale 184, which offered 4,102 tracts covering about 22.3 million acres offshore Texas and in deeper waters offshore Louisiana, attracted $151,265,255 in high bids from 44 companies.

In all, MMS received 391 bids on 323 tracts with a total for all bids of $181,551,965.

The level of interest at this sale was comparable to the Western Gulf sale a year ago, when the MMS received $165,571,777 in high bids from 50 companies. Last year 4,114 tracts were offered covering around 22.3 acres; 386 tracts received bids, with a total for all bids of $189,971,325.

"Sale 184 was clearly a success," said MMS director Johnnie Burton. "The number of tracts bid on ranks fourth in the last 10 Western Gulf sales.

"This sale saw spirited bidding activity by the independent oil and gas companies," he said. "The top three companies submitting bids were independents."

Kerr-McGee was the most active company with 53 bids; Amerada Hess was second with 52 bids and Pioneer Natural Resources was third with 42 bids.

The highest bid received on a block was $8,353,500, by Dominion Exploration and Production and Nexen Petroleum USA, for Garden Banks 337.

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Independent oil companies dominated the recent Western Gulf of Mexico lease sale — no surprise there, but these independents aren't playing it safe in the tried and true shallow shelf.

Results of the lease sale indicate that companies are going deep — both geologically and in water depth.

The Minerals Management Service's Western Gulf Sale 184, which offered 4,102 tracts covering about 22.3 million acres offshore Texas and in deeper waters offshore Louisiana, attracted $151,265,255 in high bids from 44 companies.

In all, MMS received 391 bids on 323 tracts with a total for all bids of $181,551,965.

The level of interest at this sale was comparable to the Western Gulf sale a year ago, when the MMS received $165,571,777 in high bids from 50 companies. Last year 4,114 tracts were offered covering around 22.3 acres; 386 tracts received bids, with a total for all bids of $189,971,325.

"Sale 184 was clearly a success," said MMS director Johnnie Burton. "The number of tracts bid on ranks fourth in the last 10 Western Gulf sales.

"This sale saw spirited bidding activity by the independent oil and gas companies," he said. "The top three companies submitting bids were independents."

Kerr-McGee was the most active company with 53 bids; Amerada Hess was second with 52 bids and Pioneer Natural Resources was third with 42 bids.

The highest bid received on a block was $8,353,500, by Dominion Exploration and Production and Nexen Petroleum USA, for Garden Banks 337.

Approximately 39 percent of the tracts receiving bids are in ultra-deep water of more than 800 meters. The deepest tract receiving a bid was Alaminos Canyon block 902 in 2,996 meters of water.

"The deeper water area in … Alaminos Canyon experienced a great deal of bidding by several companies," Burton said. "We also saw bidding that was in response to our deep gas initiative in shallow water."

Focused Bidding

There was not much overlap in this lease sale, according to MMS statistics. Only three tracts received four bids — the highest number for any tracts — and 271 of the total 391 tracts receiving bids got just one offer.

"I was primarily focused on the shelf, and only 15 blocks in this area received competitive bids," said Bob Shoup, president-elect of AAPG's Division of Professional Affairs who is with Samson Resources. "That's very unusual."

The blocks getting four bids were Garden Banks block 302 and 338 and Alaminos Canyon block 812.

The deepwater was a different story. All of the tracts receiving three and four bids were in deepwater, and 21 of the 39 tracts that got two bids were in deepwater.

"It appears that most people just dabbled on the shelf," Shoup said. "The western sale, which is predominately off the Texas coast, is historically less active than the central sale, but this sale seemed quite subdued even for the western Gulf."

One factor for offshore Texas is that large chunks of acreage are still devoid of 3-D seismic coverage, he added, so those areas don't get as much interest.

Kerr-McGee and its partners were high bidders on 45 leases, with 38 of that total in deepwater. The firm's net total exposure for all high bids was approximately $13 million. Kerr-McGee will be designated operator of 100 percent of the high bid leases with an average working interest of about 81 percent.

"These new leases enhance our Gulf of Mexico acreage position, which is consistent with our strategy to build core operating areas in high-potential trends," said Kenneth W. Crouch, Kerr-McGee's senior vice president of exploration and production.

With this sale, Kerr-McGee maintains its position as the largest independent leaseholder in the Gulf and the largest independent producer and leaseholder in the deepwater:

  • Including these leases, it will hold interests in 656 leases in the Gulf of Mexico.
  • It will operate more than 70 percent of these leases, with an average working interest of 55 percent.
  • Award of the 45 new leases would increase the company's total lease holdings in the Gulf by 259,200 gross acres to more than 3.4 million gross undeveloped acres.

Pioneer Natural Resources was the high bidder on 40 of 42 blocks, for a net investment on apparent high bids of about $10.2 million.

Thirty-four of Pioneer's high bids were for blocks on the Gulf shelf and would increase the company's lease position on the shelf by 195,840 acres. Pioneer would have a 100 percent working interest and be the designated operator of these new blocks.

In deepwater, Pioneer focused its bids on acreage covering prospects and leads within subsea tieback range of its Falcon Field, which is currently under development.

"The tracts from this lease sale cover a combination of some deep gas prospects and some shallower opportunities on the shelf," said Chris Cheatwood, Pioneer's executive vice president of worldwide exploration. "We were definitely more focused on the shelf in this sale."

Cheatwood said the firm sees the shelf deep gas play as a major opportunity to add significant reserves, but shallower targets help offset some of the risk associated with drilling deeper.

Rules and Regulations

Sale 184 also for the first time included stipulations that could significantly impact seismic operators in the Gulf of Mexico regarding seismic survey regulations aimed at protecting marine mammals such as the sperm whale (see September EXPLORER).

MMS offered interim guidance to the geophysical community on how to implement new regulations.

"Information is provided to surveyors about the ramp-up procedure, the exclusion zone for visual monitoring, the roles of visual observers and reporting on marine mammals," said Chris Oynes, MMS regional director. All seismic surveys must use these measures during all operations using airgun arrays in waters deeper than 200 meters throughout the Gulf.

Concern by the industry that these stipulations might impact Sale 184 apparently didn't materialize.

"What we do know for certain is that these regulations will increase the cost of seismic," said Chip Gill, president of the International Association of Geophysical Contractors. "We just don't know how much yet.

"We do have a general feel for the order of magnitude of these regulations now and they likely won't double the cost of seismic, but there will be some fraction of increase," he added. "Whether that's 10 percent or 20 percent or more is unclear."

Gill said the industry is braced for even further restrictions and regulations in the future and has already started meeting with NOAA Fisheries to have some input in the next biological opinion that will cover the west and central Gulf of Mexico lease sales for 2003-2005.

"This next biological opinion is our opportunity to help them get it right," he added. "But even if they get the science right, we don't know to what extent they will choose to exercise caution with respect to protecting the animals. There is a lot of subjectivity here. If the subjectivity is not to your benefit, but it is at least based on a true understanding of the facts, that's one thing. But exercising subjectivity based on misunderstandings, that's another matter. And that's what happened with Sale 184. We have to try and rectify that situation," Gill said.

In late August seismic industry officials kicked off a research initiative in concert with the MMS to tag whales at the 1,000-meter isobath in the Gulf. The project is using a Texas A&M research vessel.

"The project is designed to use an airgun array and expose the animals to typical seismic acoustic emissions and see how they react," Gill said. "The only way we can remove the subjectivity from this issue is hard science — empirical evidence of our impact or lack of impact on these animals. We strongly suspect there are no affects."