To hear industry and even sale sponsor US' Bureau of Ocean Energy Management talk, the first Central Gulf of Mexico lease sale in nearly two years, scheduled for this week, appears even in advance to have a lot going for it.
Central Sale 216/222, the first auction in that busy and discovery-rich area of the Gulf since the April 2010 Macondo oil spill, should be "robust," according to John Rodi, Gulf regional director for sale sponsor US Bureau of Ocean Energy Management.
"We do expect a good amount of participation," Rodi said. "There are some very high-quality tracts in this sale [and] we would not be surprised if there were some good bids."
But it's still a toss-up on whether the sale, slated for June 20 at the Mercedes-Benz Superdome in New Orleans, will capture anywhere near the 2010 auction's $949 million in high bids.
Not only has the two-year lapse since the last sale further added to existing pent-up demand, but the sheer number of expired and returned blocks and new seismic data in that area of the Gulf, coupled with important new Central Gulf discoveries since Macondo, are reasons for optimism, sale-watchers said.
In addition, Sale 216/222 showcases 914 newly available blocks -- more than the 829 such blocks in Central Gulf Sale 213 in 2010, which took place a month before Macondo. These are blocks whose terms expired or which operators returned to the BOEM since the last Central auction. Typically they have been off the market for many years -- as much as a decade -- and are often desirable to oil companies wanting a fresh look at their geology.
Based on their conversations with oil companies, observers say they believe majors will be the chief sale participants and that deep waters should lead the bidding. But that has also been true of Central sales for years prior to the Macondo blowout, which killed 11 workers aboard the Deepwater Horizon rig that drilled the well at Mississippi Canyon block 252 and forever changed the way industry works in the Gulf of Mexico.
Other potential contributors to a hearty sale are oil prices, which are off recent highs but still in industry's comfort zone given the long-term nature of deepwater development. In addition, operators have made several notable finds in deep Gulf waters since the BP-operated Macondo well blew out and caused a 10-month lull in deepwater exploration. These include Chevron's Moccasin and new accumulations at and around ExxonMobil's Hadrian discovery, both in the Gulf's Keathley Canyon area. Operators wanting to probe the extent of those finds could be drawn to blocks nearby, observers said.
Also, the Central Gulf sale is historically the larger of the two sales held yearly in the US Gulf and attracts more money on more blocks. For example, the 2010 Central sale's $949 million in high bids -- the third-largest US Gulf sale in more than 25 years -- was spread over 468 blocks. That pre-Macondo sum was nearly three times as large as the nearly $338 million that operators shelled out in Western Gulf Sale 218 in December 2011, for 191 blocks. Sale 218 was the first post-Macondo auction in the US Gulf.
Moreover, upcoming Sale 216/222 is the last such event in the federal agency's 2007-2012 five-year leasing plan, Randall Luthi, president of the National Ocean Industries Association and a former director of the US Minerals Management Service, BOEM's predecessor, said.
Because the 2012-2017 plan is not yet approved, "there may be some uncertainty as to when that next sale is to occur," Luthi said. "So I think people will put some resources toward [Sale 216/222]."
Recent sales have shown operators are willing to pay top dollar for choice acreage. For example, the high bid of Central Sale 213 two years ago was Anadarko Petroleum's $52.5 million for Walker Ridge block 793, located in the vicinity of several newly available blocks in upcoming Sale 216/222. Also in Sale 213, the next nine highest bids ranged from about $18 million to $43 million each, all relatively hefty sums for tracts that were all in deep waters and placed by majors or large independent operators.
"There are a number of very interesting prospects out there" in deep waters in Sale 216/222, Dean ElDarragi, senior marine geophysicist for Gulf Ocean Services, a purveyor of offshore geophysical surveys, said. "You're going to see multiple bids on a number of these."
This week's sale officially comprises two auction -- the regular 2012 Central sale (which usually takes place in March) and the postponed 2011 Central sale. The delays allowed the US Interior Department, the umbrella organization over BOEM, to implement stricter safety measures for industry after Macondo and also gave time for BOEM to complete an environmental impact statement for the Central area.
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