On Wednesday, August 22nd, the MMS announced the high bids for the Western Gulf of Mexico Lease Sale 204. When the dust had settled, 47 different companies had submitted 358 bids on 282 different GOM blocks. The high bids for those 282 blocks added up to a rather handsome $290 million.
Given that the number of blocks offered has varied significantly over the last 10 years, it helps to look at the percentage of blocks receiving bids in order to get a better gauge of interest. When doing that, it quickly becomes apparent that this most recent lease sale generated a level of interest that was comparable to the Western GOM sales over the last 6 years. Over the last 3 years, 9 to 10 percent of the blocks offered have received bids, so the 8.4% of blocks receiving bids this year was only a slight decline. The graph below shows the results in more details.
In terms of the total amount of the high bids received, this most recent Western GOM Lease Sale was slightly down from the previous year in which $341 million in high bids were received (a 15% decline). However, it was in line with the WGOM Lease Sale from 2005 and significantly higher than the total high bids for the years 1999 to 2004, as can be seen in the graph on the left below.
While the lease sale was down slightly in terms of the total amount of high bids received, the average high bid increased notably over the previous years. In fact, the $1 million average high bid was the second-highest average high bid over the last 20 years of Western Gulf of Mexico Lease Sales, only behind the $1.38 million average high bid from 1998. The trend in average high bids can be seen in the graph above to the right.
One point worth noting is that without the extremely high bids placed by Statoil the average high bid would have fallen to about $800,000 per block. In particular, Statoil placed huge bids on blocks AC810, $37.6 million high bid which outbid Shell by $29 million, and AC811, $27.6 million high bid which outbid Shell by $26 million. If these two bids had come in with 10% of the Shell bids, the overall average high bid would have been about $200,000 (20%) lower.
Statoil Steps Up
As has been noted above, Statoil was the biggest spender in this year's Western GOM Lease Sale. The company placed 4 of the 5 highest bids and 7 of the 10 highest bids. The company's total high bids of $139 million were more than the total high bids for the next 9 highest bidders COMBINED! Amazingly, Statoil's single highest bid ($37.6 million for AC810) was more than all the high bids of the 2nd highest winning bidder (BP with 91 high bids totaling $31 million).
Statoil was focused primarily on several areas in Alaminos Canyon and Keathley Canyon, bidding only on deepwater blocks.
Statoil's biggest spend came in the far south central region of Alaminos Canyon where the company placed $75.5 million in high bids on seven blocks immediately to the west of the Great White and Great White West prospects. In securing 5 of these 7 blocks (AC766, AC767, AC809, AC810, AC8111), Statoil significantly outbid Shell by a total of nearly $60 million. This probably came as a bit of a shock to Shell, which operates the Great White prospect in AC812, AC813, AC814, AC857, AC900 and AC901, as well as Silvertip in nearby AC815 and Tobago in AC859. Clearly, it would have been a boon for Shell to secure all of these blocks in the vicinity of its existing discoveries. But, Statoil saw things otherwise and paid rather extravagantly to secure its hold in this very promising region.
Although more than half of Statoil's high bids went to the blocks in southern Alaminos Canyon, that was not the only hot spot on which the company was focused. Statoil placed a total of about $38 million in high bids on several blocks surrounding Keathley Canyon block 134, which was leased by Murphy oil in 2000 for $770,000. For 5 out of the 7 blocks in this area in the northwest corner of Keathley Canyon, Statoil was the only bidder. However, there was clearly a high degree of interest in this area because BP also placed $6.1 million in bids on two blocks in this vicinity. Of those two blocks on which both Statoil and BP both bid, Statoil outbid BP by $11 million to $4 million on KC136, while BP outbid Statoil $2.1 million to $827,000 on KC92 (the only block on which Statoil was outbid by any company other than Hydro).
The third major hot spot for Statoil was an area just south and slightly east of the above location where Statoil placed bids on 8 blocks near the western edge of Keathley Canyon and centered around KC357. In this area, Statoil, Hydro and BP were bidding against one another on 5 of the 8 blocks. Statoil obviously won the 3 blocks on which it was the only bidder, but it only won 2 of the other 5 blocks, the other 3 of which went to Hydro (which is hardly a loss for Statoil). All in all, Statoil placed about $5.5 million in high bids on the 5 blocks that it won and about $3.5 million in bids on blocks where it was outbid by Hydro.
Another hot spot of bidding activity lies just to the south and east of KC94. In this region centered around KC184, which was lease by BP in 2006 for $362,000, 5 blocks received 14 bids, with block KC140 garnering 6 bids and a high bid of $1.6 million from the Anadrako / Nexen partnership. Somewhat surprisingly, BP was outbid on all 4 of the blocks on which it was bidding in this area. Given that BP is already leasing the block at the center of this bidding, one would have expected more of an effort to secure the neighboring blocks for future exploration.
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