Producers Bid Big in US Gulf Sale, But Rig Owners Hold Cards

HOUSTON Oct. 5, 2007 (Dow Jones Newswires)

Companies that missed out on sought-after leases in the Gulf of Mexico at Wednesday's sale may have a back door into future oil and gas projects through the drilling market.

The government auction of acreage in the central Gulf attracted more than $5 billion in offers from energy companies looking to widen their stake in the oil and gas-rich region. Bids far exceeded expectations, and some producers whose spending might have dominated past auctions found themselves outclassed. The top two bidders, Royal Dutch Shell PLC (RDSB.LN) and Chevron Corp. (CVX) put up over $1 billion - more than the entire amount bid at the previous central Gulf lease sale in 2006. The government collected $2.9 billion for high bids.

Companies usually have 10 years to explore the blocks they win, though in recent years many leases have lapsed without ever being touched due to the shortage of offshore rigs. The shortage is getting worse - Transocean Inc. (RIG), the largest deepwater driller, has most of its fleet booked through 2010. Producers with rigs under contract can earn their way into leases they failed to win at auction, industry observers say.

"Companies bid irrespective of their rig years currently contracted," said Matthew Jurecky, an analyst with Wood Mackenzie in Houston. "This will give the opportunity for many companies that lost out to farm-in into future discoveries by offering their rig."

Jurecky singled out Petroleo Brasileiro SA (PBR), or Petrobras, as a likely post-auction player. The Brazilian state-owned oil company bid on 55 blocks, but won only 26. Its $172 million in unsuccessful bids was the second-highest in the sale. But Petrobras also has about 30 deepwater drilling rigs under contract, and is building more. Murphy Oil Corp. (MUR), by contrast, also won 26 bids, but has only three deepwater rigs under contract.

Other leasing losers with available rigs include Anadarko Petroleum Corp. (APC) and BHP Billiton Ltd. (BHP), said Dave Pursell, with Tudor Pickering Energy, in a note to clients.

Drilling Boom Extended

With rig availability now cemented as an issue in the Gulf of Mexico for the next five to 10 years, drillers can expect the current run of record-setting contracts to continue, analysts said. Transocean and others have been able to charge $500,000 or more per day for the use of a single rig, double or triple the rates seen just three years ago.

"Obviously this lease sale is strong for deepwater drillers," including Transocean, Noble Corp. (NE) and Diamond Offshore Drilling Inc. (DO), Pursell said.

Those companies' stocks showed little reaction to the sale, posting slight gains after results were announced Wednesday morning, then dropping steadily. Shares in all three companies are off by about 1% Thursday morning.

Oilfield services companies that specialize in offshore, including Cameron International Corp. (CAM) and FMC Technologies Inc. (FTI) will also benefit in the long term, said Judson Bailey, an analyst with Jefferies & Co., in a note to clients. He also singled out seismic companies, which provide exploration data.

Copyright (c) 2007 Dow Jones & Company, Inc.

Related Companies
 Company: Petrobrasmore info

 - Brazil Mulls Easing Local Content Rules in Older Oil Contracts (Jul 18)
 - Brazil Reverses Preliminary Decision On Petrobras Hedge Accounting (Jul 12)
 - Petrobras Revives Plan for IPO of Fuel Distribution Unit (Jun 23)
 Company: Shellmore info

 - BP Says It Is Considering IPO of US Pipeline Assets (Jul 18)
 - Top Oil Market Summons Poseidon to US-Mideast Crude Fight (Jul 18)
 - Big Oil Sees Salvation in Gas, But What If It's a Wrong Bet? (Jul 18)
 Company: Chevron Corporationmore info
 - Mexico Delays Next Oil Auction to Let Huge New Find Sink In (Jul 17)
 - White House Is Said to Be Unlikely to Restrict Venezuelan Crude (Jul 7)
 - Oil Producers' Cost-Cutting Swept Away by New Price Decline (Jun 30)
 Company: Transocean Ltd.more info

 - Transocean Notes Management Changes (Dec 3)
 - Transocean Has A Third Of Deepwater Rigs Seeking 2014 Work (Nov 21)
 - Transocean's Alaska Rig Contract with Shell Starts July 2014 (Nov 19)
 Company: Diamond Offshoremore info

 - Diamond Offshore CEO Lawrence Dickerson to Retire (Sep 24)
 - Offshore Contractors Adjust Rig Fleets on Brazil Woes (Sep 20)
 - Diamond Beats Expectations Despite Drop in Earnings (Jul 25)
 Company: Noble Corporationmore info

 - Diamond Profit Beats Estimates, but Rig Delays Weigh on Shares (Oct 24)
 - Colorado Residents and Oil, Gas Industry Continue Open Dialogue Efforts (Oct 4)
 - Noble Corp to Spin Off Older Drilling Rigs into New Company (Sep 25)
For More Information on the Offshore Rig Fleet:
RigLogix can provide the information that you need about the offshore rig fleet, whether you need utilization and industry trends or detailed reports on future rig contracts. Subscribing to RigLogix will allow you to access dozens of prebuilt reports and build your own custom reports using hundreds of available data columns. For more information about a RigLogix subscription, visit

Our Privacy Pledge

Most Popular Articles

From the Career Center
Jobs that may interest you
Survey Project Manager
Expertise: Landman|Project Management|Surveying
Location: Corpus Christi, TX
Brownfield Project Manager
Expertise: Pipeline Engineering|Project Management
Location: Houma, LA
Land Analyst - WY / UT Land Grant
Expertise: Landman|Lease Analyst|Legal
Location: Denver, CO
search for more jobs

Brent Crude Oil : $50.2/BBL 3.29%
Light Crude Oil : $47.89/BBL 3.34%
Natural Gas : $2.94/MMBtu 1.37%
Updated in last 24 hours