US Offshore Gulf Oil, Gas Lease Sale Reaps Record $3.7 Billion

US Offshore Gulf Oil, Gas Lease Sale Reaps Record $3.7 Billion

The U.S. Interior Department’s Gulf of Mexico oil and gas lease sales on Wednesday reaped a record $3.7 billion – the highest amount ever in a U.S. government lease sale – as oil prices hovered above $100 a barrel, the Minerals Management Service said.

Flush with cash from record crude prices, short on reserves replacement ratios and with diminishing access to international resources, international oil companies have turned their focus to the U.S.

The MMS estimates the central Gulf of Mexico Lease Sale 206 could increase recoverable resources by 877 million to 1.46 billion barrels of oil and 3.7trillion to 5.9 trillion cubic feet of natural gas. The agency believes the eastern Gulf of Mexico Lease Sale 224 may boost recoverable resources by around 100 million to 140 million barrels of oil and 160 billion to 340 billion cubic feet of natural gas.

Companies such as Hess Corp. (HES) – the biggest spender for the auction, doling out over $438 million for 25 blocks in the central Gulf sale ”“ primarily focused on deepwater acreage over 800 meters to the sea bottom. Although exploration and development costs are greater, some of the Gulf’s last large fields are expected to lie in deepwater acreage as shallower prospects are pumped dry.

“Today’s sales emphasize the Gulf’s strategic value for America’s energy security and the significant economic benefits of environmentally safe oil and gas production for the nation,” said MMS Director Randall Luthi.

A consortium of three companies – Anadarko Petroleum Corp. (APC), Murphy Exploration & Production Co. and Samson Offshore Co. – spent the most on a single block, putting up almost $106 million for Green Caynon 432.

Murphy Exploration & Production is a unit of Murphy Oil Corp. (MUR). Samson Offshore is a unit of Samson Investment Co.

Bob Daniels, Anadarko senior vice president for worldwide exploration, said the deepwater Gulf of Mexico is a key component of the company’s growth strategy. He said the company’s lease-sale effort was focused on securing acreage around our existing programs and “adding a few new drill-ready opportunities aimed at continuing that growth.”

BP PLC (BP) won the most blocks – 63 – spending $337 million in the central Gulf sale.

That area saw the lion’s share of activity, with almost $5.7 billion offered for 5,569 blocks covering almost 30 million acreas offshore. Acreage in more than 800 meters in depth to the sea floor received $5.2 billion worth of bids.

The eastern Gulf sale, although only generating about $65 million for 118 blocks over 547,000 acres offshore, was the first sale that give states a portion of revenues from the leases.

Under the terms of the sale, Louisiana, Mississippi, Alabama and Texas will receive a 37.5% share of the high bids, rental payments and royalties.

The larger state share of revenues is part of a strategy to encourage more offshore activity, including in areas currently closed to exploration and production. The states claim they need the funds for infrastructure development and wetlands restoration from the oil and gas activities in the Gulf of Mexico.

U.S. Rep. Ed Markey, D-Mass., chairman of the House Energy Independence and Global Warming committee called the new state-share policy a “boondoggle.”

“This is the king of all earmarks, a giveaway that keeps on giving,” he said. Markey, a leader on the Capitol Hill fighting to cut tax breaks to oil companies, said the state-share program could mean a $170 billion windfall for a few Gulf Coast states over the next 60 years, “and a serious reduction infederal funds needed for programs affecting all 50 states.”


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