Gulf of Mexico Lease Sale 257 Sees More Participation, Improved Bidding | The Salesmark

Gulf of Mexico Lease Sale 257 Sees More Participation, Improved Bidding

Gulf of Mexico Lease Sale 257 Sees More Participation, Improved Bidding

US Gulf of Mexico Lease Sale 257 captured healthy, if measured, bid totals Nov. 17, with numerous multimillion-dollar offers made in deepwater, and ExxonMobil taking honors as the star of shallow-water with tracts it snagged at relatively low prices.

“It’s a clear indication of the [company’s intention to use the blocks for its] carbon capture and storage project,” said Justin Rostant, principal analyst-Gulf of Mexico research for energy consultancy Wood Mackenzie. “I anticipate they’ll use the area for direct capture of carbon and put it in the reservoirs of the blocks they acquire”.

ExxonMobil’s CCS project is a Texas hub to capture and store CO2 emissions from heavy industries around the Houston Ship Channel. It would require $100 billion of investment and aims at capturing 50 million metric tons/year of CO2 by 2030 and twice that amount by 2040. ExxonMobil unveiled the project on April 19.

Rostant noted the Texas Gulf Coast has not been a prolific production area in recent decades and said ExxonMobil sold off its shallow-water producing fields years ago.

ExxonMobil bid $158,400 each for the shallow blocks for about $15.5 million total for all, a relative bargain considering many shallow-water tracts in Sale 257 fetched several hundred thousand dollars apiece.

Sale sponsors US Bureau of Ocean Energy Management said in a post-sale news release in the future it will “use updated greenhouse gas emission models to take substitution impacts and foreign oil consumption into account, resulting in the most robust projections ever of the climate impacts of offshore lease sales.”

It will also analyze the “social cost of carbon to better understand the true impacts of fossil fuel leasing decisions”.

Sale 257 was expected to be bigger

Analysts and even BOEM thought the auction would yield higher bid totals, if not more bids than recent sales. The results didn’t disappoint.

The success of Sale 257 is “a combination of higher oil prices and also the fear that the Biden Administration could try to change the leasing process in the future” like fewer lease sales, less acreage offered, or tougher royalty/lease rental terms, said Rene Santos, manager of North American supply for S&P Global Platts Analytics.

The auction generated nearly $192 million in high bids placed on 307 blocks. A total of 316 bids were placed, signifying there was not a lot of competition for acreage.

In terms of numbers of bids, “this is the highest total in seven years, since Sale 231 in 2014 which had 326 bids,” BOEM regional Gulf spokesman John Filostrat said. “It’s an indication that companies are still interested in the Gulf of Mexico”.

By contrast, Sale 256 in November 2020 captured $121 million, with 105 bids placed across 93 blocks.

A total of 33 companies participated in Sale 257, compared with 23 a year ago.

The sale’s largest bid of $10 million was made by Occidental Petroleum for a block in the remote Alaminos Canyon area more than 200 miles offshore. That block, AC 259, was one of a cluster of six adjacent Alaminos Canyon tracts that Oxy bid for and won.

Oxy also offered $3.5 million and $1.2 million respectively for two other blocks in that group, and $601,000 each for the other three. Alaminos Canyon houses Shell’s Perdido production hub, although that is located in the southern part of the block, whereas Oxy’s blocks were in the area’s northeast corner.

Green Canyon generates big sums

The other region where producers made numerous multimillion-dollar offers was the Green Canyon offshore Louisiana – a prolific producing area and the site of a slew of deepwater fields that include BP’s Atlantis, BHP’s Shenzi, and Chevron’s Tahiti.

Oxy offered $6 million for a single middle Green Canyon block – the second-largest bid in the sale – and $1.5 million for an adjacent one. Oxy has several Green Canyon production hubs which new exploration wells can hook into easily and cheaply.

BHP bid $3.5 million for a tract in upper Green Canyon, and Chevron plunked down over $2.5 million each for three tracts.

Several bidders for remote Walker Ridge blocks sited very near Mexican territorial waters grabbed acreage in that once-pricey region for relative bargain price tags of less than $1 million piece.

Resurrecting Phobos?

A potential trend emerging in the US Gulf deepwater is operators have begun to develop discoveries made a decade ago or longer. Small privately held LLOG Exploration signaled it may continue doing that, like it, jointly with Repsol, made bids of $3 million and $2.6 million for acreage that comprises the Phobos discovery in very remote Sigsbee Escarpment area.

Phobos is the only discovery made in Sigsbee, which borders Mexican territorial waters: It was made in 2013 in 8,500 feet of water by Anadarko Petroleum, which was acquired by Oxy two years ago. Sigsbee has no production or infrastructure, and Anadarko appears to have been the only operator that has drilled there.

Phobos is roughly sited 11 miles south of Lucius, a producing field since 2016 which had also belonged to Anadarko and now to Oxy. Analysts say Phobos could be tied back to Lucius as output from currently producing fields dwindles.

High temperature, high-pressure wells in the Lower Tertiary play, which Phobos represents, for years were not producible, but the first 20,000 psi wells are currently under development in the US Gulf, which could lead to more in the future.

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