to enlarge map. Map data courtesy of petroleumreports.com
Strong oil and gas prices, growing confidence in the
Gulf of Mexico deep shelf gas play and continuing successes in deepwater
were the key drivers behind the March Central Gulf lease sale, the
busiest lease sale in six years.
Strong competition from 83 companies garnered 829 bids on 557 tracts
for a total of $368,763,482 in high bids, according to the Minerals
"The fact that this was the highest number of bids received
in a Central sale in the past six years is a clear indication of
industrys continued confidence in the Gulf as a source of
energy for the nation," said MMS director Johnnie Burton.
For example, interest in the deepwater continues -- in fact, a
large number of tracts receiving bids were in ultra-deepwater.
Earlier this year the MMS indicated that a record number of drilling
rigs were working in the ultra-deepwater Gulf. In early March, 12
rigs were drilling in 5,000 feet of water or greater.
The drilling activity in ultra-deepwater is translating to new
discoveries. Five discoveries were announced in 5,000 feet of water
or greater in 2001, three in 2002 and six last year.
Then theres the shelf, which drew 60 percent of the bids.
"We believe this reflects definite industry interest in deep
gas in shallow waters in response to royalty relief offered as part
of MMSs Deep Gas Initiative," Burton said.
The highest bid of over $35 million was submitted by Amerada Hess
Corp. for the deepwater Green Canyon 468 block. The company, which
outbid four other firms, said the block was one of the most sought
after in the sale and is located in the prolific deepwater Miocene
Amerada was high bidder on 17 deepwater leases and operator on
14 of that total. The company submitted the highest total amount
of high bids -- over $40.7 million for 17 blocks.
"The deepwater Gulf of Mexico is a key focus area for Amerada
Hess," said Bob Strode, senior vice president of exploration.
"The new acreage ... provides exciting additional opportunities
for our company."
The firm has six producing fields in the Gulf with two more scheduled
to begin production this year. The company has participated in two
recent significant discoveries -- the Shenzi and Tubular Bells.
The second highest bid also was for deepwater acreage: A group
including Nexen Petroleum Offshore USA, Anadarko Petroleum, BHP
Billiton Petroleum and Union Oil Company of California bid over
$31 million for Green Canyon block 512.
The third highest bid was for Walker Ridge 969 in ultra deepwater
by EnCana Gulf of Mexico LLC. Two additional top ten bids, including
one for Ewing Bank 964 by relative newcomer to the Gulf, Tana Exploration
Co. LLC, were for deepwater blocks.
Maintaining a Shelf Life
The shelf garnered its fair share of the top ten highest bids as
- Stone Energy bid over $6 million for Mississippi Canyon block
- Hunt Oil bid in excess of $5 million for South Timbalier 155.
- El Paso Production -- one of the Gulfs busiest deep gas
drillers -- along with The Houston Exploration Co. bid almost
$5 million for West Cameron 62.
- Pogo Producing bid over $4 million for Ewing Bank 948.
- Tana Exploration bid more than $4 million for Eugene Island
Overall, 369 shallow water blocks and 188 deepwater blocks garnered
bids, including 91 in ultra-deep water depths of 5,200 feet or greater.
Walker Ridge 896 in about 10,500 feet of water was the deepest block
receiving a bid.
Even the blocks receiving the greatest number of bids were in both
the deepwater and on the shelf. West Cameron 62 and South Timbalier
78 on the shelf each received eight bids, as did Walker Ridge 970
Magnum Hunter Resources was the sales busiest company with
55 high bids. The firm will be operator on 31 of the new blocks
with working interests ranging from 40 to 100 percent. With the
addition of these leases, Magnum Hunter now has an interest in 232
blocks covering approximately 1.1 million gross acres in the Gulf
"This is the fourth year we have been high bidder on 40 or
so blocks, so this sale was a continuation of our strategy,"
said Charles R. Erwin, senior vice president of exploration for
The company has participated in 97 offshore wells since entering
the Gulf of Mexico shelf, resulting in 79 completions for an overall
success rate of 81 percent. It currently has approximately 60 million
cubic feet of gas equivalent per day net production from the Gulf,
which accounts for about 30 percent of the firms total net
By mid-year the company will add up to 30 million cubic feet of
gas equivalent of new daily production from earlier Gulf discoveries,
"This year we might have taken a little more risk on some
blocks that were not completely nailed down prior to the sale,"
he said, "but our feeling is that prospects are getting harder
and harder to find on the shelf -- and they are getting eaten up
at a relatively high rate."
The company also is moving into the shelfs deep gas play.
"About 30 percent of our prospects today are deep shelf and
the remainder are traditional Gulf opportunities," he said.
Magnum Hunter also bid on a fair number of blocks in Main Pass,
where it has a large lease position.
"In the Gulf of Mexico shelf you have to keep drilling due
to the steep decline curves of these wells," he said. "But
with todays product prices, the strong daily rates and quick
payout you get from these wells it is a profitable business. Even
ideas that were once marginal are economic today.
"The shelf is a volume type play," he added, "and
we look for opportunities to pick up leases with a prospect that
can be drilled right away."
At the end of March Magnum Hunter was participating in seven wells
on the shelf and operating one of those wells.
Magnum Hunters strategy in the Gulf has always included partnering
with other strong independents to maximize its exposure to opportunities.
Remington Oil and Gas Corp. is one of Magnum Hunters most
important partners. Remington was the high bidder on a total of
41 blocks in the sale and operator on 24 of that total, with a 50
to 60 percent interest.
"We are pleased to acquire 25 additional 3-D defined blocks
in the offshore shelf," said James Watt, Remingtons president
and chief executive officer. "These blocks will complement
our existing prospect inventory, adding both low risk, lower potential
prospects along with deeper, higher risk, higher potential prospects."
BHP Billiton, with 32 high bids for over $18 million, was the sales
second most active company. The firm has interests in more than
400 blocks in the Gulf, concentrated primarily in the Central Gulfs
deep and ultra-deepwater.
"The Gulf of Mexico is on its way to becoming a core area
for the company, much like our other core areas in the Bass Straits
on the southeast margin of Australia and the Northwest Shelf of
Australia," said Gary Grubitz, the companys exploration
manager for the Gulf of Mexico.
The firm continued to build on its success in the deepwater Atwater
foldbelt trend, where it has been involved in almost every significant
discovery -- including Neptune and Shenzi, which the company
operates, BP-operated Atlantis (44 percent working interest), BPs
Mad Dog (over 23 percent interest) and BP-operated Puma (33.3 percent
BHP Billiton was the high bidder on six deepwater blocks where
the firm has deep, subsalt prospects along the Atwater foldbelt
"We have the makings of a core area in what we call the western
Atwater foldbelt," Grubitz said.
Water depths in the play range from 4,000 feet under the salt canopy
to 6,000 feet out in front of the salt.
The company also was high bidder on one particularly important
lease -- an extension of "our successes in the amplitude driven
mini-basin play in deepwater," Grubitz said.
"We have a prospect called Little Burn on that lease near
our producing Typhoon and Boris fields," he said. "We
have bid on that block several times in the past and been rejected,
so we are hopeful we will be awarded the block this time."
ChevronTexaco operates Typhoon and Boris is a nearby satellite
operated by BHP Billiton.
BHP Billiton also pursued new opportunities in the expanding deep
shelf gas play, being the high bidder on 26 blocks in the West Cameron,
East Cameron, South Marsh Island, Eugene Island, Ship Shoal and
South Timbalier areas.
"The play we are looking at on the shelf is primarily the
ultra-deep targets in the 20,000 to 35,000 foot range," Grubitz
said. "It appears no wells have tested the targets we are interested
in, but we have been doing a lot of regional geologic and geophysical
Three wells are planned in the next eight to 12 months to test
this deep play.
Small, But Significant
A growing number of smaller independent companies have quietly
grown a significant stake in the Gulf. One such company is Stone
Energy, which was not the busiest firm in terms of total number
of high bids, but did submit the third highest total amount of high
bids. The firm exposed more than $15.5 million for eight blocks.
"We are a Gulf of Mexico-focused company, with 91 percent
of our reserves and 85 percent of our operating revenue coming from
the province," said James Prince, the companys chief
financial officer. "We have historically operated on the shelf,
but we are now beginning to move into deeper water. We were the
high bidder for a couple of what are for us deepwater blocks in
about 1,700 feet of water.
"We primarily acquire producing properties, using very specific
criteria to develop any acquisition targets," Prince continued.
"Today we are getting to the point where that same criteria
can be applied to some of the shallower deepwater opportunities
-- criteria such as production history, infrastructure in place,
properties with depleting production. Now that we can apply that
same successful approach to some deepwater leases, we are moving
in that direction."
Stones six additional high bids were for blocks on the shelf
with deep gas targets, which has been the companys bread and
butter, Prince said.
"Weve been the number two or three company in deep shelf
drilling on the basis of number of wells on the shelf -- last year
we drilled eight prospects deeper than 15,000 feet, and were successful
on five," he said.
Currently Stone has about 60 productive properties in the Gulf
-- almost all of them are on the shelf, and about half of them have
deep gas opportunities, according to Prince.
"Since discovery these properties have produced over 17 trillion
cubic feet of gas equivalent cumulatively," he said. "We
believe there are still significant volumes of gas to be found around
old producing fields that have already demonstrated significant