GoM Leases Net $872M as BP Returns - Analyst Blog

In the latest auction for offshore drilling rights in the Gulf of Mexico's (GoM) prolific central region, the federal government attracted hundreds of millions of dollars in bids. According to the U.S. Interior Department's Bureau of Ocean Energy Management – which oversees offshore drilling – the lease sale collected around $872 million from oil and gas companies.

Energy majors like Freeport-McMoRan FCX, Chevron Corp. CVX, TOTAL SA TOT came out as some of the biggest spenders in the latest round of auction that put 1.7 million acres of prospective oil/gas development spread over 329 federally owned tracts in the central Gulf – generally regarded as the most promising area for drilling – up for sale. In all, the bureau received 380 bids submitted by 50 companies.

In particular, British oil and gas giant BP Plc BP, which was able to participate for the first time in 2 years, submitted 24 winning bids for drilling leases in the central Gulf. This comes barely a week after the London-based behemoth reached an agreement with the U.S. Environmental Protection Agency (EPA) that lifted a ban (enforced in late 2012) and allowed BP to rejoin bidding on government contracts in the GoM region. The bar was imposed after the agency concluded that BP had not completely rectified the issues that led to the Macondo well blowout in 2010.

Coming back to the bidding process, the offers will now be reviewed by the Bureau of Ocean Energy Management with the agency carrying out its own independent verification prior to actually awarding any leases. The successful names will be announced within 90 days following which the department will analyze the proposals before issuing drilling permits.

The strong response to the recent auction has been heralded as a sign of the central GoM's attractiveness to Western oil companies and the region's renaissance since the oil spill, which slowed down new offshore leases for deepwater drilling.

As a reminder, on April 20, 2010, offshore driller Transocean Ltd.'s RIG ultra-deepwater Horizon drilling platform, contracted to BP, sank following an explosion while operating in the U.S. GoM off the coast of Louisiana.

The incident killed 11 workers and spewed more than 200 million gallons of crude in what is touted as the country's worst oil spill ever. Subsequently, a moratorium was imposed on offshore drilling at water depths of more than 500 feet in the region, which was lifted on October 12, 2010.

This badly dented activity in the Gulf, which makes up 23% of the domestic oil production and 7% of natural gas production. However, current exploration successes and enthusiasm about future prospects has driven demand for acreage in the region, as reflected by the tremendous response to the latest round of auction.

Moreover, energy outfits are now more confident about complying with the strict safety and environmental requirements for offshore operations that have been imposed in the aftermath of the BP oil spill.