Companies pass on the US Gulf of Mexico lease sale

 Today’s region-wide Gulf of Mexico Lease Sale 254 saw 84 bids received from 22 participating companies, with high bids totalling US$93 million. That amounts to roughly half of the previous lease sale, held in August 2019.

Mfon Usoro, senior research analyst with Wood Mackenzie’s Gulf of Mexico upstream team, said: "With the recent drop in oil price, it came as no surprise that bidding dollar amount was significantly lower – this is the first time the total high bid amount came in at below US$100 million since the region-wide lease sales began in 2017. ”

Although bidding activity was muted, the Majors took part, accounting for more than 60% of the high bid amount, confirming their commitment to the region. Competition ensued among Shell, Chevron, BP and Total for blocks that recently-expired in Green Canyon and Garden Banks. If the winning bids are not rejected by BOEM, the winners will acquire the blocks at a fraction of previous lease bonuses paid. A notable block was GB 963, a stone’s throw from Total’s North Platte project, which expired in October 2019. Total and Shell went toe to toe on that block, with Total winning it with a US$1 million bid, a fraction of the $22 million that was paid to pick up the block in 2012.

Bidding close to infrastructure continues to be a recurring theme as companies look to weather the storm of another downturn. Infrastructure-rich Mississippi Canyon, Green Canyon and Garden Banks accounted for over half of the bids and were the only areas that received competitive bids. Only Shell and Chevron ventured out to the more remote Atwater Valley.

“While most Independents stayed away from the lease sale amidst budget cuts, BHP bucked the trend and placed the highest bid of US$11 million for the second lease sale in a row,” Usoro said.

“The block (GC 80) is adjacent to GC 124 which BHP snagged with the highest bid of US$22 million in last lease sale in August 2019. BHP also bid on a cluster of blocks in Alaminos Canyon to bolt onto its existing acreage in the region where it is currently evaluating results of the Ocean Bottom Node seismic.”

She added: “We think more lease sales are still in the cards, but higher oil prices will be required for bid amounts to climb back to historical norms. Otherwise this sale result will continue with even lower bidding activity.”