GoM Lease Sale 251: Signs of returning confidence

AUGUST 15, 2018 — Today’s region-wide offshore oil and gas Lease Sale 251 generated $178,069,406 in high bids for 144 tracts covering 801,288 acres in federal waters of the Gulf of Mexico. A total of 29 companies participated in the lease sale, submitting $202,667,923 in bids.

The high bids total of $178.1 million was an increase of about $53 million (43%) from the last region wide lease sale in March.

Commenting on the results of this latest round, William Turner, senior research analyst at Wood Mackenzie, said: “With a decrease in acreage from March and the prospect of lower royalty payments for deepwater acreage off the table, expectations were muted going into this lease sale.

“However, with an increase in competitive bids and dollar amount from the last round, companies demonstrated their continued confidence in the region. Increased competition centering around more selective blocks close to infrastructure tells us that capital is returning to the Gulf of Mexico.”

Roughly 40% of blocks this round made a return from lease sales in 2007 and 2008, including a sizable portion of blocks towards the east picked up by ExxonMobil, previously held by Shell. Shelf bidding decreased this round but was still stronger than recent low rounds.

“The biggest surprise came from Hess with the highest bid of the round,” notes Turner. “It bid $25.9 million on a block in the heart of the Mississippi Canyon near BP’s Na Kika offshore platform. Surprising as it is also near the Silvergate prospect, a dry hole.”

“Meanwhile, Equinor and Exxon, among others, demonstrated an increased appetite for risk with bids on remote blocks,” he added. “This reflects the steady increase in oil price and competitive ROI now due to much more efficient practices in the Gulf of Mexico.”

National Ocean Industries Association (NOIA) President Randall Luthi said, “While not a barn burner, Lease Sale 251 tops the previous Gulf sale in terms of increased participation, increased competition for offerings, and bid amounts. In addition, bidding activity demonstrates both continued interest in deepwater tracts and renewed interest in shallow water tracts.”

“The operating environment in the U.S. Gulf of Mexico shows tangible signs of improvement, pointing to an industry that is poised to shift into high gear; oil prices are higher, revisions to overly burdensome regulations are in the works, rig rates and supply chain prices are more competitive, and companies have improved the efficiency of their operations,” said Luthi. “The results of today’s sale reaffirm the paradoxical state of an offshore energy industry in slow recovery mode; the future is bright, but shifting out of reverse takes time.”