US auctions 1st offshore tracts since oil spill

AP News
Posted: Dec 14, 2011 3:24 PM
US auctions 1st offshore tracts since oil spill

The federal government's first auction of offshore petroleum leases in the Gulf of Mexico since the Deepwater Horizon oil spill disaster in 2010 drew $337.7 million in winning bids Wednesday.

Petroleum explorers bid on 191 tracts in the western Gulf off the coast of Texas.

With natural gas prices low and the U.S. sitting on vast shale deposits of gas, most of the bidding centered on deepwater sites targeted for oil exploration. Twenty companies offered 241 bids totaling $712.7 million.

ConocoPhillips submitted the largest bid, agreeing to pay for $103.2 million for a deepwater tract.

The sale total was sharply higher than during the last western Gulf sale in 2009, which drew only $115 million in high bids during a time of economic recession and increasing production of natural gas from shale.

Randall Luthi, president of the National Ocean Industries Association, an offshore trade group, said it appeared that most of the bidding _ especially in the Keathley Canyon region of the Gulf, which received the highest number of bids _ was tied to oil prospects already discovered. ConocoPhillips' sale-leading bid was for a site in that area.

"There could be large areas of unknown potential out there, but for now they are trying to lock up areas they know," Luthi said.

John Rodi, Gulf of Mexico regional director for the Bureau of Ocean Energy Management, said he wasn't surprised by the lack of interest in the shallow Gulf shelf, which was a hotbed for gas exploration before shale finds came into play.

"That area has been picked over and the gas price is not as rosy as oil prices," Rodi said.

The government plans to auction tracts in the central Gulf of Mexico _ off the coasts of Louisiana, Mississippi and Alabama _ in July for the first time since BP's Macondo spill in the Gulf.

ConocoPhillips submitted the greatest number of high bids, totaling $157.8 million, followed by Exxon Mobil Corp. with $63.3 million. BP also was an active player with $27.5 million in winning bids.

Depending upon water depth, the leases run from five to 10 years and revert back to the government if not developed. The federal government will receive an 18.75 percent royalty rate on all production.

A suit was filed Tuesday by several environmental groups challenging an environmental impact study before the sale _ a move that could eventually overturn the sale. Interior Secretary Ken Salazar, who attended the sale, said he could not comment specifically on the suit, but believed the agency "can successfully defend this sale."

Salazar also said he was encouraged by the sale following implementation of new safety standards for drilling, including requirements that operators must prove they are capable of quickly dealing with blowouts.

"We don't want to forget the lessons of the Deepwater Horizon," he said.