December 22, 2023 [S&P Global]- Going into US Gulf of Mexico Lease Sale 261, the general consensus was that the Dec. 20 auction appeared headed for a healthy outcome but hardly a show-stopper, as it featured the almost the exact number of blocks as its predecesor nine months before.
But the event turned up a number of breathtaking bids, which included a stunning $25 million offer by Occidental Petroleum which beat out four other large contenders and was the apparent biggest bid of the auction.
US Gulf of Mexico Lease Sale 261 took in high bids of $382.2 million Dec. 20, US sale sponsor US Bureau of Ocean Energy Management said after the auction’s conclusion that reaped the largest dollar total in more than eight years.
Hess, which in a matter of months is slated to be absorbed by Chevron in a hefty $53 billion merger projected to close in 2024, walked away as the clear sale champion with at least three eight-figure offers for acreage near its production hubs in the central Gulf off the Louisiana coast, and sum total high bids of $88 million for 20 blocks.
A total of 26 companies participated in the sale, although just 20 companies placed bids, BOEM said shortly after the auction concluded. The other six companies were part of bidding consortia but had not yet been officially counted until after bids were opened.
A total 352 bids were placed across 311 US Gulf of Mexico blocks in Sale 261, BOEM said at the livestreamed event over the Internet from its New Orleans headquarters.
Bid-block volume similar to last US Gulf auction
That bid volume was almost identical to the last US Gulf Sale 259 in March 2023, where 353 bids were placed on 313 blocks by a total 32 upstream operators. Sale 259 took in nearly $264 million in high bids, the largest of which was nearly $16 million from Chevron for a deepwater block in the remote Keathley Canyon region of the US Gulf.
But Sale 261 bested that high sum with Oxy’s $25 million offer. Hess also placed other eight-figure apparent high bids of $21 million, $18 million and $14 million for Green Canyon acreage. That prolific producing area of the Gulf captured seven of the ten highest bids in the auction.
In addition, Hess turned in two $7-plus million-dollar apparent high bids for two other Green Canyon blocks. The company has production hubs in both Green Canyon and Mississippi Canyon.
Oxy placed some other handsome offers too, including one for a Green Canyon block in a joint $17 million bid with Chevron – the fourth-largest bid of the sale. In total, Oxy plunked down $74 million in high bids on 49 blocks.
Overwhelmingly, Sale 261 blocks attracted mostly single bids – 277 of them. Another 29 tracts received two bids each, four blocks received three bids each and 1 highly sought block received five bids.
That desirable block — recipient of Oxy’s $25 million bid — also received offers by BP, Shell, Hess and LLOG Exploration. All five companies have sizable deepwater operations in the US Gulf.
Majors dominate rival bidding
Four tracts receiving three bids apiece were generally bid upon by various combinations of Shell, Chevron, Hess, Oxy and Equinor. Shell and Equinor, which are partners in the Sparta discovery that was greenlighted Dec. 19, were pitted against both each other and against Woodside Energy in bidding for one of the tracts and Woodside Energy for a block in the lower Garden Banks area, not far from where Sparta will be developed.
Woodside apparently won that block, but with an offer well under a million dollars for it at $801,000. However, Hess knocked another three-company rivalry out of the park for a Green Canyon tract, with a $21 million offer.
Hess also did the same at two other Green Canyon blocks, in one case bidding $7 million and the other bidding $2 million. Hess competed against its future merger partner Chevron for those blocks in both cases, with third parties being Oxy in one tract and Shell in the other.
Shell and BP, while not offering huge sums of money for individual tracts, still performed well in Sale 261. Shell boasted high bid totals of $69 million across 65 blocks – the highest number of high bids in the auction – while BP had high bids totaling $20 million across 24 blocks.
Shell had the ninth and tenth-largest bids of the sale, $6.7 million for a Garden Banks block and $5.3 million for a Keathley Canyon tract.
Repsol bids expansively in shallow waters
In an unusual bidding pattern, Repsol made single-bid offers for more than 30 shallow-water blocks in the Gulf’s Mustang Island and Matagorda Island areas offshore Texas, with offers well under $1 million apiece.
ExxonMobil did the same thing in a couple of recent US Gulf, although it bid for around 90 blocks in one case and around 70 blocks in another. The major intends to use the blocks for carbon capture and storage in its Gulf Coast area new Low-Carbon Solutions business to store CO2.
Sale 261’s $382 million is an amount not seen since well before the pandemic of 2020-2021 when upstream operators began to rein in spending and moderate their drilling activity. The total is the highest since the $538.8 million in Central Sale 235 in March 2015.
But even that was far below the $3.6 billion spent in the March 2008 Central lease sale, at a time when oil was headed to what would eventually be $147/b some months later, only to collapse before that year’s end. And that was even before shale oil had began to be widely produced, which kicked off a boom after 2010 that would eventually boost US crude production from about an average of 5.5 million b/d that year to current record volumes over 13 million b/d.
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