Global and Regional MarketsNewsThe Offshore Frontier

Gulf of Mexico Lease Sale 249 draws $137 million in bids for 90 blocks

The US Bureau of Ocean Energy Management (BOEM) held Lease Sale 249 on 16 August in New Orleans, La. A total of 27 companies, including major IOCs and independent operators, placed 99 bids on 90 blocks covering 508,096 acres in federal waters off the coasts of Texas, Mississippi, Louisiana and Alabama. Approximately 76 million acres were on offer in deep- and shallow-water prospects, including East Breaks, Garden Banks, Alaminos Canyon, Keathley Canyon and Mississippi Canyon. The sale offered the largest amount of acreage in the history of the federal offshore program in the Gulf of Mexico, according to the US Department of the Interior.

It included 14,220 unleased blocks, located from 3 to 231 miles offshore, in the Gulf’s Western, Central and Eastern planning areas in water depths ranging from 9 to more than 11,115 ft. Excluded from the lease sale are blocks subject to the Congressional moratorium established by the Gulf of Mexico Energy Security Act of 2006; blocks that are adjacent to or beyond the US Exclusive Economic Zone in the area known as the northern portion of the Eastern Gap; and whole blocks and partial blocks within the current boundary of the Flower Garden Banks National Marine Sanctuary.

The greatest number of bids came from Shell, Chevron and Anadarko Petroleum, which made 19, 15 and 10 successful bids, respectively. Total E&P USA placed the highest bid on a block, offering $12.1 million for Garden Banks 1003. Other major IOCS, including Chevron, Shell and ExxonMobil, each made more than $20 million in successful bids. Statoil, LLOG and BP also made multiple bids totaling more than $1 million. Several independent operators made smaller bids, including Houston Energy, Ridgewood Energy, Fieldwood Energy and Stone Energy Offshore. In total, operators bid $137 million in this sale.

“The path to American energy dominance starts in the Gulf, and the hard work of rig and platform workers, support staff onshore, and the industries that support them cannot go unnoticed,” Interior Secretary Ryan Zinke said. “Today’s results will help secure their jobs and create more good paying jobs while generating $121 million in revenue to fund everything from conservation to infrastructure.”

According to post-sale analysis by Wood Mackenzie, deepwater received the most attention during the sale, with 76 deepwater blocks receiving 98% of the high bid value. “The deepwater industry is emphasizing short-cycle, low-risk prospects above high-impact, wildcat drilling,” said William Turner, Senior Research Analyst. “Today we saw operators continue to focus on areas near existing infrastructure with a majority of bids close to existing hubs or appraised developments.”

Overall activity for Lease Sale 249 is down by roughly half from Central Lease Sale 247, which was held in March. During that sale, operators submitted 189 bids on 163 tracts, with bids totaling $315.3 million.

The sale was broadcast live on BOEM’s website, allowing the agency to “reach as broad of an audience as possible,” Vincent DeVito, Counselor for Energy Policy at Interior, said during the sale. “This allows us to increase transparency and public access to allow anyone, anywhere to view our sale day process.”

Lease Sale 249 is the first offshore sale under the National Outer Continental Shelf (OCS) Oil and Gas Leasing Program for 2017-2022. Under this program, nine additional regionwide lease sales that combine all three planning areas are scheduled for the Gulf, where resource potential and industry interest are high and oil and gas infrastructure is well established.

On 29 June, President Donald J. Trump and Secretary Zinke announced a public comment period for a new National OCS Oil and Gas Leasing Program for 2019-2024. The comment period is the first step in executing the new program. The 2017-2022 Program, which begins with the lease sale held today, will continue to be executed until the new National OCS Oil and Gas Leasing Program is complete.

The lease sale terms include stipulations to protect biologically sensitive resources, mitigate potential adverse effects on protected species, and avoid potential conflicts associated with oil and gas development in the region.

Additionally, BOEM has included appropriate fiscal terms that take into account market conditions and ensure taxpayers receive a fair return for use of the OCS. These terms include a 12.5% royalty rate for leases in less than 200 m of water depth and a royalty rate of 18.75% for all other leases issued pursuant to the sale. The 12.5% royalty rate for leases in less than 200 m is lower than the proposed 18.75% royalty rate for shallow-water leases that BOEM published in the Proposed Notice of Sale.

The estimated amount of resources projected to be developed as a result of the regionwide lease sale ranges from approximately 0.21 billion to 1.12 billion bbl of oil and 0.55 trillion to 4.42 trillion cu ft of gas. Most of the activity – up to 83% of future production – of the proposed lease sale is expected to occur in the Central Planning Area.

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