Beaufort Sea Lease Sale Attracts $8.9 Million in High Bids

Three companies offered a total of $8.9 million in high bids in Wednesday's MMS Beaufort Sea Lease Sale 186 in Alaska. This is the first federal offshore lease sale conducted in Alaska since 1998 and drew bids from ConocoPhillips, EnCana and Armstrong Oil & Gas Inc.

Federal officials said they were pleased with the results. "We think it was a very good sale," said John Goll, Alaska director of the U.S. Minerals Management Service. "The companies that came were those that have been more active in exploration in Alaska in the last several years."

In remarks made before the bids were opened, MMS Director Johnnie Burton said the Bush administration has high hopes for future development in Alaska's federal outer continental shelf, even though there has been only limited exploration and just a trickle of oil production to date. She said there are "fantastic resources" yet to be discovered and produced.

"We think that the Gulf of Mexico, which now is responsible for about 98 percent of all offshore production nationally, is going to be getting some competition from Alaska," Burton said. "We hope industry is as optimistic as we are."

To entice interest in the Beaufort Sea, the MMS offered a package of financial incentives, the first ever for federal offshore leasing in Alaska but similar to those used in the past to encourage Gulf of Mexico development. They included royalty holidays for future production and a reduction in required minimum bids for tracts farther from shore.

Only a small portion of the 9.4 million acres (3.8 million hectares) offered and only 34 of the available 1,800 blocks drew bids, but those were clustered in particular areas. Bidding was most heated for an area north of Prudhoe Bay that was formerly known as the Sandpiper unit. The block which received the highest bid was Beachy Point Block 6456. ConocoPhillips bid $2.1 million for this tract. ConocoPhillips also submitted a bid for Beachy Point Block 6459 at $1.2 million.

The area was drilled in the late 1980s by several companies, and natural gas and gas condensates were found, but there was no commercial development.

The gas potential is what drew ConocoPhillips' interest, along with federal production incentives, said Rick Mott, the company's Alaska vice president for exploration and land. "We were somewhat attracted by the prospect of a natural gas pipeline from Alaska," Mott said.

Armstrong's bids were in that general area, and complemented offshore leases acquired in 2001 in state waters.

Most of EnCana's bids were for tracts offshore from Teshekpuk Lake in the National Petroleum Reserve-Alaska. The federal petroleum reserve has been the subject of recent onshore exploration.