ConocoPhillips, Chevron lead pack at Western Gulf lease sale

11 29, 2012 by The Times-Picayune

ConocoPhillips submitted high bids for most of the federally-owned offshore oil and natural gas drilling leases that were put up for auction in New Orleans on Wednesday.

The Houston-based firm, which is the third-largest integrated energy company in the country, posted almost $51.8 million for 62 tracts in the Gulf of Mexico. More than 20 million acres off the coast of Texas were offered in the lease sale.

The sale, which marked the first offering under the Obama administration's new five-year plan for leasing on the outer continental shelf, garnered about $133.8 million from 13 companies that submitted high bids for 116 offshore drilling tracts. Some of the money will make its way back to Louisiana, where it is now constitutionally required to go to coastal protection and restoration projects.

All but $4.6 million of the $133.8 million in winning bids were for drilling tracts located in the deepwater Gulf. Overall, the area that received bids was a small fraction of the total acreage that was up for grabs in the sale.

Chevron USA submitted the second highest number of winning bids, but offered up the most money, posting $56 million for 28 drilling tracts. That includes the day's highest bid, $17.2 million for block 546 in the East Breaks area of the Gulf.

BHP Billiton Petroleum, a division of the world's largest mining company, came in third out of 13 companies that participated, submitting $14.5 million in high bids for 10 drilling tracts.

The three companies scooped up 100 of the tracts that received bids. Altogether, the US Bureau of Ocean Energy Management, which regulates offshore drilling, estimated that the sale could have led to the production of 116 to 200 million barrels of oil and 538 to 938 billion cubic feet of natural gas.

Each winning bid is subject to review by federal regulators.

After the lease sale, Sen. Mary Landrieu, D-La., called on the Obama administration to expand its five-year leasing plan to include an additional 11 sales, and to expand drilling to areas in California and Virginia.

The final tally of Wednesday's lease auction was down considerably from last December's offering of drilling tracts in that area of the Gulf, which was the first sale since the Deepwater Horizon disaster in 2010.

The pent-up demand from energy companies trying to ramp up domestic deepwater exploration and production helped net almost $325 million in high bids for 181 drilling tracts that spanned more than 1 million acres. Its highest bid, $103.2 million for a tract in the Keathley Canyon area of the Gulf, drew audible gasps from some in the crowd as it was announced.

Randal Luthi, president of the National Ocean Industries Association, a trade group representing the offshore energy industry, said that while the numbers did not exceed expectations, "the key part is that bidders did show up, and there were some pretty good bids submitted."

"This is certainly not a great lease sale," Luthi said, "not a record-breaking sale, but it's a good sale."

Still, this time around, BP was noticeably absent. On Wednesday, the US government suspended the British oil giant from winning new federal contracts or oil leases, saying that the company has a "lack of business integrity."

The Environmental Protection Agency said the suspension would remain in place "until the company can provide significant evidence to EPA demonstrating that it meets federal business standards." BOEM Director Tommy Beaudreau also said that no new drilling leases would be awarded to BP until the suspension is lifted.

BP, the largest producer of oil and gas in the Gulf, decided not to participate in the auction "independent of and prior to" the EPA's announcement, a company source said.

Beaudreau said he believes that BP "is genuine about reforming the way it does business offshore and making real changes, not only to its practices but its culture."

Also on Wednesday, two BP rig supervisors and a former BP executive pleaded not guilty to criminal charges tied to the Gulf spill and the company's response.

In June, an oil and gas lease sale in the Central Gulf - which is to the east of area auctioned off on Wednesday - attracted more than $1.7 billion in high bids from energy companies. About 39 million acres, or 7,434 tracts, were put up for bid, from as close as three miles to as far as 230 miles off the coasts of Louisiana, Mississippi and Alabama.

In March, federal regulators plan to auction another 38 million acres in the Central Gulf, which will include about 7,250 federally-owned drilling tracts in water depths of nine to more than 11,115 feet.