On Your Mark, Get Set, Go
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The Federal Government plans to offer offshore oil and gas leases in the Western Gulf of Mexico Planning Area in an auction to be held in November 2012. The results of this sale should be watched by investors to determine the level of interest by the industry in this important producing area.
Upcoming Auction
The Bureau of Ocean Energy Management (BOEM) has proposed holding Lease Sale 229 on November 28, 2012. The lease sale will offer all unleased acreage available in the Western Gulf of Mexico Planning Area. This sale is also the first to be held under President Obama’s Outer Continental Shelf Oil and Gas Leasing Program that runs through 2017.
Gulf of Mexico
In 2011, the BOEM released an assessment of the resource potential of the Outer Continental Shelf portion of the Gulf of Mexico. The report said that the area held 87.5 billion barrels of oil equivalent (BOE) of undiscovered technically recoverable resources (mean estimate). The resource base was composed of 48.4 billion barrels of oil and 219.5 trillion cubic feet of natural gas.
Previous Sale
In June 2012, the BOEM held Lease Sale 216/222, offering leases in the Central Planning Area of the Gulf of Mexico. The lease sale garnered $1.7 billion in high bids for blocks covering 2.4 million acres.
Statoil (NYSE: STO) submitted the highest bid in the lease sale, offering $157.1 million for a block in the Mississippi Canyon area. The company spent a total of $333.3 million on 26 winning bids in the auction.
Royal Dutch Shell (NYSE: RDS-B) spent the most of any operator in the lease sale, with $406.6 million in winning bids on 24 blocks. Another major player in the auction was BP (NYSE: BP), which submitted 48 bids in the lease sale. The company won 43 bids at a cost of $239.9 million.
Several independent exploration and production companies also participated in Lease Sale 216/222. Apache Corporation (NYSE: APA) was the most active bidder, with 66 bids submitted. The company won 61 bids at a total cost of $23.6 million. Anadarko Petroleum (NYSE: APC) was less successful than its competitor, winning only 11 out of 19 bids made at the lease sale. These high bids cost the company $12.6 million.
Lead Time
Despite the abundance of oil and gas resources in the Gulf of Mexico, offshore exploration and development is expensive and time consuming with some projects requiring as much as a decade to move from initial discovery to production.
Hess Corporation is the operator and 57.14% owner of the Tubular Bells prospect located on Mississippi Canyon Block 725. The first oil and gas discovery was reported here in late 2003 and development began in 2011. The company expects to start up production from Tubular Bells in 2014.
Oil and gas resources at the Cascade Field in the Walker Ridge area of the Gulf of Mexico were first discovered in 2002. Petrobras is using a floating production, storage and offloading (FPSO) unit here and started up production in 2012.
One of the first deepwater discoveries in the Gulf of Mexico was reported by ExxonMobil in 1977 at the Zinc field on Mississippi Canyon Block 354. The field began first production in 1993 utilizing a subsea production system.
The Gulf of Mexico is an important area that needs to be explored and developed so that the United States can increase domestic oil and gas supply. The government should consider opening up other areas of the outer continental shelf for leasing so we can move even further towards the goal of energy independence.
shaleplays has no positions in the stocks mentioned above. The Motley Fool owns shares of Apache and ExxonMobil. Motley Fool newsletter services recommend Petroleo Brasileiro S.A. (ADR) and Statoil (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
