NOIA: First Lease Sale Under New Five-Year Plan Could Offer Surprises

National Ocean Industries Association (NOIA) President Randall Luthi expects Wednesday's Western Gulf of Mexico Lease Sale 229 to be "interesting to watch".

The sale is the first under the Obama administration's new five year offshore leasing plan, "so the level of the activity in this sale will be a good indicator of industry's confidence not only in the remaining resources of the Western Gulf of Mexico, but also in the Administration's willingness to allow those resources to be developed in a timely fashion."

The level of sales is not expected to match the level seen in the 2011 Western Gulf sale, which was larger than usual due to the cancellation of the 2010 Western Gulf sale.

"But we could see some surprises if residual pent-up interest has carried over from 2011," said Luthi in a statement Tuesday.
"All in all, I am hoping for a healthy sale," Luthi added.

Fifteen lease sales are scheduled under the 2012-2017 lease program, including four Western Gulf lease sales beside Lease Sale 229, according to information on the U.S. Bureau of Ocean Energy Management (BOEM) website.

Approximately 3,873 unleased blocks, or 20.8 million acres, will be offered in Lease Sale 229. The sale will take place 9 a.m. Wednesday morning at the Mercedes-Benz Superdome in New Orleans, La. The acreage being offered is located 9 to 250 miles offshore in water depths ranging from 16 feet to over 10,975 feet (5 meters to 3,346 meters).

During Wednesday's sale, BOEM will open 131 bids submitted by 13 companies on 116 offshore blocks.

BOEM estimates the proposed lease sale could result in the production of 116 million to 200 million barrels of oil and 538 billion cubic feet (Bcf) to 938 Bcf.

"BOEM is committed to promoting the safe development of the Nation's critical offshore oil and gas resources while taking steps to safeguard the marine and coastal communities," said BOEM Director Tommy P. Beaudreau in a statement Tuesday. "This sale represents a key component of the President's comprehensive, all-of-the-above energy strategy and the regionally tailored and responsible approach that we are taking under the Five Year Program."

BOEM will offer 2,465 blocks in less than 1,312 feet ( 400 meters) of water for an initial period of five years and 368 blocks in water depths ranging from 1,312 feet (400 meters) to less than 2,624 feet (800 meters) will be offered for an initial five-year period.

BOEM will offer 590 blocks in water depths between 2,524 feet (800 meters) and 5,249 feet (1,600 meters) for an initial seven-year period, and 450 blocks in water depths greater than 5,249 feet (1,600 meters) will be offered for an initial 10-year period.

Terms and conditions for Lease Sale 229 are generally the same as the Western Gulf Lease Sale 218, which took place in December of last year. However, blocks near the U.S.-Mexico maritime and continental shelf boundary could become subject to the agreement between the United States and Mexico concerning transboundary hydrocarbon reservoirs in the Gulf of Mexico.

The United States and Mexico in 2001 ratified a continental shelf boundary treaty, which contained provisions for a 10-year moratorium on drilling within 1.4 nautical miles of the maritime boundary on both the U.S. and Mexico sides. The moratorium was initially scheduled to expire in January 2011, the United States and Mexico mutually agreed to extend the Western Gap buffer zone for an additional three years. The buffer zone now remains in effect until January 2014.

Bids submitted on blocks in the boundary area of the Gulf of Mexico will not be opened on the date scheduled for the sale, but may be opened at a later date. On or before 30 days following the approval by the U.S. Congress of the Agreement or May 31, 2013, whichever occurs first, the Secretary of the Interior will determine whether it is in the best interest of the United States either to open bids for Boundary Area blocks or return the bids unopened, according to BOEM.

The boundary area includes blocks in the Port Isabel, Alaminos Canyon, Keathley Canyon, Sigsbee Escarpment Blocks, South Padre Island Blocks, and South Padre Island East Addition Blocks.

At this point, it is difficult to predict how the U.S.-Mexico boundary agreement will impact U.S. producers, a NOIA spokesperson told Rigzone. Shell's Perdido development project is located adjacent to the boundary, and is producing significant amounts of oil.

"So there may indeed be potentially similar resources beneath the nearby blocks up for lease," the spokesperson commented.