Weekly Offshore Rig Review: C GOM Run

Last week, the MMS held the Central and Eastern GOM lease sales, with the CGOM sale breaking records in terms of the dollar amount bid for the leases. Given the importance of the Central GOM lease sale, this week's Offshore Rig Review will focus on the details and trends related to that sale. We'll be examining some of the key statistics regarding the sale and how it compares to CGOM lease sales of the past.

Blocks with Bids
First, we'll take a look at the number of blocks that received bids in order to gauge the breadth of interest in the blocks offered in the lease sale. This will be an indicator of whether the level of interest was focused on a particular portion of the blocks up for lease or spread more broadly across the blocks available.

In this most recent CGOM Lease Sale, a total of 615 blocks received bids. That is the 7th largest number of blocks receiving bids in a CGOM lease sale in the last 25 years. At the same time, a total of 5,569 blocks were offered, which is the 11th largest number of blocks offered in a CGOM lease sale. In order to bring these two data points together, it helps to look at the percentage of blocks that received bids. For CGOM lease sale 206, 11% of the blocks on offer received bids.

Percentage of Blocks Receiving Bids
Central GOM Lease Sales 1983-2008
graph of percentage of blocks receiving bids

So how does that compare with previous years? Starting with the CGOM lease sale held in 2001, an average of 11.8% of the blocks on offer have received bids. So, this year's 11% rate is close to, just slightly below, the level of interest shown in the previous 7 CGOM lease sales. Looking back further at the history of CGOM lease sales, there was a low of just 2% of blocks receiving bids in 1986 and a high of 20.4% of blocks receiving bids in 1997. The all-time average for CGOM lease sales is 9.9% of blocks receiving bids.

This year's 11% is slightly above par for the last 25 years, but slightly below par for the last 7 years. More broadly, the blocks up for lease in the most recent CGOM lease sale had a broader appeal than CGOM lease sales of the past, although the bidding focus was slightly narrower than during the last 7 years.

Bids per Block
Another useful indicator of the level of interest at a given lease sale is the number of bids per block that received bids. This is a measure of the level of competition within the lease sale, as the number of bids per block points out how many companies (or groups of companies) were pursuing specific blocks.

With an average of 1.72 bids per block that received bids, this most recent CGOM lease sale was the 4th most competitive CGOM lease sale, just behind the 1.73 bids in 1997, the 1.75 bids in 2006, and the 1.98 bids in 2007. This is about 13% higher than the historical average of 1.52 bids per block in all previous CGOM lease sales.

Thus, this most recent CGOM lease sale generated a significantly higher amount of interest and competition than other CGOM lease sale have historically.

High Bids
The single most striking aspect of the most recent Central GOM lease sale is the fact that it was the highest-grossing CGOM lease sale ever, at least in real dollars. With a total of $3.68 billion in high bids, it was the first CGOM lease sale to exceed the record set in 1983 at the initial CGOM lease. That first sale resulted in $3.47 billion in high bids. So, this year's CGOM sale passed that mark by $208 million, which is about 6%.

Of course, when inflation is taken into account, the current lease sale still falls far short of the 1983 record. The inflation-adjusted value of the 1983 high bids is $7.37 billion in 2008 dollars, which is essentially twice the amount bid in 2008.

graph of high bids

Looking at the average high bids, this lease sale was even more remarkable. The average high bid for CGOM Lease Sale 206 was $5.98 million. That was nearly 50% higher than the average high bid from the previous CGOM lease sale in October 2007, and the 2008 average high bid was more than 7 times the average high bid from the previous 10 years before that ($839,000 from 1996 to 2006).

The average high bid of $5.98 million in the most recent CGOM lease sale was also the first to surpass the record average high bid of $5.29 million set in 1983. That represents a 13% increase over the previous record average high bid from 1983. Again, taking inflation into account sets the 1983 average high bid well above this most recent sale, but the fact still remains that CGOM lease sale 206 was record-setting.

By all of these marks, this was an exceptional lease sale that shows the level of interest that the Gulf of Mexico still holds.

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