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
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
"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."
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
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