Upcoming Central US Gulf lease s

Upcoming Central US Gulf lease sale to likely top 2005 bids: MMS

Houston (Platts)--10Mar2006

With more than 100 newly available blocks on tap this year, up 36% from
last year, next week's Gulf of Mexico Central Lease Sale 198 could top the
nearly $354 million in total apparent high bids captured in the 2005 auction,
according to the top Gulf official for sale sponsor US Minerals Management
Service. 
     "Two things drive sales: prices and geology, and geology is probably
foremost," MMS Gulf Regional Director Chris Oynes told Platts in a telephone
interview. "But certainly the sheer numbers [of newly-available blocks]
suggest the possibility" of the sale to pull in a greater total tally for high
bids than in Central Sale 194 a year ago. 
     Sale 198, to be held March 15 in New Orleans, will showcase just over
4,000 blocks offshore Louisiana, Mississippi and Alabama. 
     The auction "has to be big, for a couple of reasons," Oppenheimer analyst
Fadel Gheit said Thursday. "For one thing, industry is loaded with cash. Also,
leases are their lifeblood, and sales are like an insurance policy -- they're
buying another [drilling] option at a very low cost."  
     Nearly 60% of the 382 recently relinquished blocks in Sale 198 are in
shallower waters of the aging Continental Shelf, which have been a key focus
of E&P bidders in Gulf auctions of the last several years.
     Newly available blocks are those returned to MMS by oil companies in the
past year, and are often subject to fierce bidding by rivals eager to explore
for hydrocarbons potentially overlooked by previous tract holders. By
comparison, Central Sale 194 last year featured 280 newly returned blocks,
split about 50-50 between deep and shallow waters. 
     "Upcoming lease expirations could create opportunities for smaller
companies that want to get into" the deeper Gulf play, said Ray Deacon, an
analyst with Harris, Nesbitt.
     Companies expanding their US Gulf position now, such as Norsk Hydro which
recently acquired Spinnaker Exploration, and Cal Dive International, which
will buy Remington Oil & Gas, "may decide they'd like to have still more
acreage to fill out their portfolios" and spend liberally in next week's sale,
Deacon said.  
     In deeper waters, among this year's newly available blocks are several
located near notable 2005 discoveries, and as a result are almost sure to kick
up some dust among prospect-hungry E&P companies, analysts said. For example,
a couple of returned blocks are located within a dozen miles from the Knotty
Head and Genghis Khan discoveries in Green Canyon, in a basin gaining
popularity for its sizeable hydrocarbon potential. 
     Not far away is the more-recent Chevron-operated Big Foot find in the
Gulf's Walker Ridge area, near which at least five newly available blocks are
clustered. Ultra-deep Walker Ridge has also been under intense scrutiny as
several companies prepare for the Gulf's first production test of the
Chevron-operated Lower Tertiary Jack well in Walker Ridge. 
     "The Knotty Head and Big Foot discoveries should cause any (leases) in
that area to get a good look," Oynes said.

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