Offshore lease auction results show industry's interest in deep-water drilling



WASHINGTON - Oil and gas companies are set to pay the government $110 million in high bids for leases in the western Gulf of Mexico, after an auction Wednesday that underscored the industry’s interest in deep-water territory.

Fourteen companies participated in the sale, which nominally put 21 million acres up for grabs, though bidders ultimately picked up 81 blocks spanning 433,823 acres.

The industry’s interest was concentrated on the Alaminos Canyon area and other territory near the U.S.-Mexico maritime border, some of which had been off limits for development while the two countries enacted a treaty to govern activity there. About a quarter of the 93 submitted bids were for territory in the boundary region.

‘‘This sale . . . reaffirms the industry’s great interest in deep-water prospects in the transboundary area,” said Randall Luthi, head of the National Ocean Industries Association.

The most active participant was BP Exploration and Production., which won 27 of the 32 blocks on which it bid and will pay $22.8 million for that territory. BHP Billiton Petroleum won 14 of its 16 bids, for a total of $21.9 million and ConocoPhillips Co. won 10 of its 11 bids, totaling $23.4 million.

Companies measure their auction success both by how many tracts they win and what they pay for the territory. The government’s sealed bidding process means that companies don’t know how many other firms will be jockeying for the same blocks or what competitors are willing to pay. As a result, individual blocks can attract widely varying bids.

Chevron, for example, won Alaminos Canyon block 215 with an $8.5 million offer - nearly 10 times the $873,760 bid by its only competitor for the same acreage, Anadarko Petroleum Corp.

Chevron also made the highest single bid in the sale - a $16.8 million offer for Alaminos Canyon block 431. It won all five blocks it pursued, and its $25.8 million tab made it it the auction’s biggest spender.

Anadarko, by contrast, failed to win any of the three blocks it targeted.

Shell Oil Co., the Houston-based U.S. arm of Royal Dutch Shell, lodged just one offer in the sale, for territory near its Perdido developments in the Gulf. Its $1.75 million bid was enough to win Alaminos Canyon block 905, edging out the only other competitor, Stone Energy, which had bid $1.06 million for the tract.

Shell said in a statement that the acquisition strengthens its existing position in the Perdido, where the company already produces from 14 wells.

BP said in a statement that its participation in Wednesday’s sale “further underscores its commitment to the Gulf.”

Although sale results are still preliminary, Wednesday’s auction is set to generate more revenue for the federal government than the previous western Gulf auction a year ago, which yielded $102.4 million in winning bids for 53 lease blocks.

The total bids in Wednesday’s auction - including winning and losing offers - amounted to $135.5 million.

Oil industry leaders said the auction results should persuade the Obama administration to lease more coastal waters for oil and gas development, going beyond currently planned sales of territory in the Gulf and near Alaska. The Interior Department is in the early stages of drafting a new plan for selling offshore leases from 2017 through 2022.

‘‘The western and central sections of the Gulf of Mexico remain important areas for domestic oil and natural gas production,” said Erik Milito, upstream group director for the American Petroleum Institute. “But they have been continually explored for decades while the vast majority of U.S. waters are kept off-limits.”

First Published August 19, 2014 8:00 PM

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