The US Gulf of Mexico region wide Lease Sale 250 was held today, 21 March 2018. It attracted 159 bids from 33 participating companies, with high bids totalling US$124.8 million. The total of high bids represents a modest increase of about US$3 million over last year's August region wide Lease Sale 249 but is still a lacklustre result.
Commenting on the results of this latest lease round, William Turner, senior research analyst at Wood Mackenzie, said: "With about a 60% increase in acreage from August but relatively the same dollar amount and low competition, bidders got a bargain at today's lease sale. Bidding activity focused on Mississippi Canyon where operators were likely drawn to its established infrastructure and lowest cost developments in the Gulf of Mexico. Operators are keen to keep the utilization up on the infrastructure and every new barrel produced through these facilities, further realizes value from the original investment."
"The biggest surprise came from BP who bid on 20 Block in DeSoto Canyon just one ridge over from Mississippi Canyon," notes Mr Turner. "Given lack of hardly any exploration activity in the area, they could be chasing a new play opener."
Shelf bidding increased this round as well, the possible impact of lowering the royalty rate last year finally kicking in. However, fiscal changes for deepwater, i.e. lowering the royalty rate from 18.75% to 12.5%, will help turn the low bidding around in the next lease round.
"Although we are in a climate where a lot of projects begin to make sense again in the Gulf of Mexico, operators appear to still be in a 'wait and see' mentality when it comes to exploration, looking for stability in oil prices. Meanwhile some patient but dedicated operators are on the brink of cracking the code on ultra-high-pressure developments. Once the industry sees some proven developments in fields like Anchor, others will follow suit and we will begin to see the return of significant volumes being discovered and developed in the region."