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Amid dimming Gulf of Mexico interest, US announces next sale

https://www.chemnet.com   Apr 02,2018 Platts
The US Interior Department will offer 77.3 million acres offshore Texas, Louisiana, Mississippi, Alabama and Florida for oil and natural gas exploration and development in an August 15 lease sale, the agency's Bureau of Ocean Energy Management said Friday.

The sale will include all available unleased areas in federal waters in the Gulf of Mexico, Interior said.

But the sale follows a similar lease sale earlier this month that drew modest interest from industry and was announced as oil majors appear to be looking for offshore prospects, including Brazil.

On Thursday, Brazil sold 22 of 68 total onshore and offshore blocks up for bid Thursday, but none of the 21 onshore blocks garnered offers. ExxonMobil won eight bids covering 640,000 acres of fields, including one bid valued at $848 million. That lone bid was roughly seven times the amount raised in the US Gulf of Mexico lease sale earlier this month, which Trump administration officials had heralded as the largest oil and gas lease sale in US history.

"On the economics of Brazil deepwater in particular, the Santos basin has some of the most productive deepwater wells anywhere in the world," said Thomas Olney, an analyst with Facts Global Energy. "Some wells in the Lula field have been achieving 35 kb/d peak rates, well above anything we've seen in [Gulf of Mexico] or the North Sea. And the exploration there has been relatively de-risked with the large [floating production storage and offloading] project model that Petrobras has pioneered really helping to drive down project costs."

The planned Gulf sale announced Friday, known as Lease Sale 251, will offer 14,474 unleased blocks, located from three to 231 miles offshore in the Gulf's Western, Central and Eastern planning areas with water depths ranging from three to 3,400 meters, Interior said.

The size of the sale planned to August is similar to Lease Sale 250, which was held March 21 and offered 76.9 million acres and 14,474 unleased blocks in the same distances and depths offshore. The August sale would offer the same amount of unleased blocks and about 400,000 more acres than the March 21 sale which, at the time, was heralded by Interior as the largest oil and gas lease sale in US history. The March 21 sale generated nearly $124.8 million in high bids for 148 tracts covering 815,403 acres, about 1% of the total acreage offered.

The sale will offer fiscal terms which include a 12.5% royalty rate for leases in less than 200 meters of water depth and a rate of 18.75% for all other leases, part of an effort to boost drilling in shallow waters, Interior said.

Traditionally, August sales have drawn less interest from industry. Additionally, companies may have already ruled out the available acreage in this month's sale and may decide to wait for new seismic work to be completed or new offerings next year.

Federal waters of the Gulf of Mexico cover about 160 million acres and contain an estimated 48 billion barrels of undiscovered technically recoverable oil and 141 Tcf of undiscovered technically recoverable gas, Interior said.

In the announcement Friday, the agency called the August sale part of President Trump's "America-First Offshore Energy Strategy," but the sale, like the March 21 sale, was scheduled during the Obama administration, which called for 10 Gulf of Mexico lease sales from 2017 through 2022 and one sale in Alaska's Cook Inlet in 2021.

The sale comes as the Trump administration moves to scrap the 2017 through 2022 plan and develop its own offshore leasing from 2019 through 2024.On January 4, Interior unveiled a draft proposed lease sale program that calls for 47 separate sales in nearly all federal program areas, from 2019 through 2024, including 12 sales in the Eastern Gulf of Mexico, three in the South Atlantic and one in the Straits of Florida

But following a meeting with Florida Governor Rick Scott, a Republican, on January 9, Interior Secretary Ryan Zinke announced he was "removing Florida from consideration for any new oil and gas platforms," in regards to the draft proposed program his agency released the week before.

Walter Cruickshank, the head of Interior's Bureau of Ocean Energy Management, has said no formal decision has been made on the proposed five-year program. --Brian Scheid, brian.scheid@spglobal.com
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