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Deepwater blocks most favored in US Gulf of Mexico Lease Sale 257

Deepwater blocks will be the most sought-after acreage in US Gulf of Mexico Lease Sale 257 — but just barely, since a surprising volume of bids were in the shallow waters of the aging Continental Shelf, according to pre-sale information released by the US Bureau of Ocean Energy Management late Nov. 16.

The auction, to be live-streamed Nov. 17 from sponsoring agency BOEM’s New Orleans office, attracted 316 bids across 307 blocks. By contrast, Sale 256 in November 2020 captured 105 bids across 93 blocks – and collected high bids totaling $121 million.

And before that, Sale 254 in March 2020 took in 84 bids across 71 blocks, and fetched total high bids of $93 million.

Sources ahead of Sale 257 said they expect it to exceed the year-ago sale’s $121 million sum. US oil prices that top $80/b and uncertainty over the near-term future of lease sales could spur operators to grab acreage while it is still possible to do so.

The uncertainty stems from the US’ Joe Biden presidential administration’s fight to uphold its former months-long moratorium earlier this year on leasing of federal lands onshore and offshore, which a US district court judge overturned in June. That decision cleared the way for Sale 257 to proceed.

46% of bid blocks in deepwater
Of the 307 blocks that received bids in Sale 257, 142 or 46% were in deep- or ultradeep water depths of 2,600-5,250 feet. Of those, 53 bids were in ultradeep waters of more than 5,250 feet of water, BOEM statistics showed.

Another 140 blocks or 45% of tracts that received bids, were in shallow waters of no more than 650 feet deep.

Just 25 tracts with bids were in mid-water depths of 1,300 to 2,600 feet, BOEM statistics showed.

The volume of shallow water offers was somewhat of a surprise since that depth range had fallen out of favor in the last dozen or more years. That acreage, on the Continental Shelf, is mostly natural gas-prone and gas prices had been low until recently.

Moreover, even long-time shallow-water US Gulf operators have become deep water players in recent years as they grew in size and the cost of operating in deepwater has fallen.

By contrast, in Sale 256 a year ago just 12 of the 93 blocks receiving bids were in shallow water. And just six tracts offered in Sale 254 during March 2020 attracted bids.

Sale 257 also features more participants than its year-ago counterpart – 29, compared to 23.

Those 29 companies, however, represent the number of bid submitters, not total participants. The actual number of participants could rise after the bids are opened since bid submissions are usually made by the operator and frequently contain multiple participants whose presence will only be known when bids are publicly read.

Few competitive bids
By far, blocks that received only one bid each were far and away the most common for Sale 257, indicating little competition for acreage. Just nine tracts received two bids apiece, and five of those were in deepwater. Fully 97% of blocks only received a single bid.

Historically, US Gulf lease sales drummed up fierce competition for blocks that either were located near major discoveries or that seismic had indicated promising prospects. Several years ago it was not uncommon to see four, five or even seven or eight bidders on choice tracts – and typically those offers ran well into seven-figure dollar amounts and more often eight-figures.

In a couple of cases, competitive bids topped $100 million for a single block, although these were very rare and not recently.

For the most part, US Gulf’s geologic plays are well defined and understood, and long-time sale-watchers expect bidding to occur in areas where participants have bid before in recent sales – usually around their existing production hubs where they can quickly tie in new discoveries.

Deepwater plays with the most allure for operators in recent years have been the Miocene subsalt offshore eastern Louisiana in the Mississippi Canyon/Green Canyon areas of the Gulf, such as the Chevron-operated Tahiti field; the Lower Tertiary which is mostly found in the remote Walker Ridge, Keathley Canyon and Alaminos Canyon areas closer to Mexican territorial waters, such as Occidental Petroleum’s Lucius field; and the Norphlet play in the east-central Gulf off the coasts of the Louisiana “toe” as well as Mississippi, typified by Shell’s Appomattox field.

The sale is scheduled to start at 9 am local time.
Source: Platts

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