With oil prices still elevated and operator appetite for offshore drilling seemingly limitless, Central Gulf of Mexico Lease Sale 227 appears headed for vigorous bidding and dollar totals that may match or even surpass 2012's collective $1.7 billion in high bids, according to analysts.
But sale sponsor US Bureau of Ocean Energy Management was more cautious although it too predicts a hearty auction, set for March 20 at the Mercedes-Benz Superdome in New Orleans.
Moreover, with BP currently suspended from US Gulf lease awards by the federal government, it is anyone's guess if the major -- typically one of the largest Central sale bidders both in amount spent and number of blocks captured -- will participate in the event. BP declined to comment.
Even so, long-time observers expect a robust sale, based on the level of prospects oil companies have, increasing finds in both deep- and shallow waters and continued demand for choice acreage.
"Rigs are returning to the Gulf and the general mood of operators is enthusiastic," Randall Luthi, president of the National Ocean Industries Association, said Friday.
While the area's slower permitting process after the Macondo oil spill in April 2010, more potential regulations and competing foreign offshore acreage becoming available could tamp down the auction's bidding, "we are optimistic that Wednesday's sale could equal or surpass the size of the last Central Gulf sale," Luthi said.
Dean Eldarragi, senior marine geophysicist for geophysical services provider Gulf Ocean Services, said he is "sensing a lot of interest in this sale ... I'm expecting it to top last year's lease sale."
BOEM Regional Gulf Director John Rodi was reluctant to go that far, although he projected in an interview with Platts that Sale 227 would be "healthy."
The $1.7 billion put down for 454 blocks in Central Sale 216/222 in 2012 "is a high bar to try to reach," he said, noting the large pent-up demand following a 10-month drilling lull after the Macondo oil spill likely accounted for the hefty high-bid sum.
Rodi also said he expects middle and ultradeep waters will be a bidding hot spot, as well as tracts in the DeSoto Canyon and Lloyd Ridge areas.
"We also think there's a reasonable chance there will be interest in the Green Canyon and Garden Banks areas" that features a deepwater geological play known as the Middle to Lower Miocene, he said.
BP's suspension was imposed last November by the Environmental Protection Agency, the same day as Lease Sale 229 for the western Gulf. BP did not bid in that sale, the smaller of the region's two yearly auctions. EPA imposed the suspension after BP's guilty plea to charges relating to the oil spill from the Macondo block that the company operated.
BP remains under that suspension although it is allowed to submit bids in this week's sale. But any offers will be disqualified if the temporary ban remains after a 90-day review by BOEM.
BP has always been a big participant in Central sales, noted Rodi. In the 2010 auction, a month prior to the Macondo accident, it came in seventh in total high bids (24) and ninth in sum of high bids ($38 million); in the 2009 Central sale it ranked third in number (27) and second in sum ($77.5 million) of high bids.
The coming Sale 227 showcases just 306 recently returned leases -- about a third of the 914 such tracts listed in last year's Central Gulf sale. These blocks were held for up to 10 years by oil company bidders, who returned them after the terms expired or the holders no longer wanted them.
Since they have been off the market so long, they are frequently the target of big offers by oil companies that vie for a fresh peek at the subsea geology.
Rodi and also Eldarragi expect more interest in shallow waters because companies have found increasing oil volumes along what has been a traditionally natural gas-prone Continental Shelf. "I think the smaller independents will be more active this year, and that there will be some new independents bidding," Eldarragi said.
