A. D. Koen
Senior Editor News
As expected, a burst of hefty bids for subsalt tracts monopolized the latest U.S. Minerals Management Service lease sale in the Central Gulf of Mexico.
Led by a trio of subsalt enthusiasts, companies offered apparent high bids totaling more than $277 million at Outer Continental Shelf Sale 147 Mar. 30 in New Orleans. Combined bonuses of winning offers were more than four times the $69.1 million exposed with high bids 1 year ago at central gulf 0CS Sale 142 (OGJ, Mar. 29, 1993, p. 27).
Presale assessment held that the event could see spirited bidding because of the subsalt play (OGJ, Mar. 21, Newsletter).
Even so, Anadarko Petroleum Corp., Houston, jolted Sale 147 participants with a bid of $40,044,457 for Ship Shoal South Addition Block 337, the biggest solo offer recorded in the gulf since the region's first MMS areawide lease in May 1983. That year at OCS Sale 22, Amoco Production Co. offered $41.25 million for South Marsh Island North Addition Block 85.
In addition to receiving the sale's highest bid, Ship Shoal South Addition 337 was Sale 147's most sought after tract with nine bids. In a lease sale oddity, Anadarko's high bid for Block 337 topped an offer of $6.25 million by a combine made up of itself, Amoco, and Phillips Petroleum Co.
Anadarko's $40 million bid amounted to $8,008.90/acre, Sale 147's highest per acre winning bid and an OCS leasing record. MMS previously listed a bid of $6,516.21/acre in May 1981 for a tract off southern California as the highest bid per acre on the U.S. OCS.
Also contributing to the relative success of Sale 147 were persistently strong U.S. gas prices.
SALE HIGHLIGHTS
In terms of total apparent winning offers, Sale 147 was the largest Gulf of Mexico sale since 96 companies in March 1990 offered high bids totaling $427.4 million with 840 bids for 538 tracts at OCS Sale 123.
In all, 82 companies in Sale 147 offered 598 bids totaling more than $374.75 million for 375 tracts. In March 1993, 61 companies at Sale 142 offered about $86 million with 261 bids for 201 tracts.
Mainly because of its $40 million offer for Ship Shoal South Addition 337, Anadarko led other Sale 147 participants with net exposure of $98.5 million on 26 apparent winning offers.
"The subsalt play in our case affected 99% of what we did," said Paul Taylor, Anadarko vice president of corporation communications. "Forget gas prices, oil prices, and technology for the moment. We had an edge, and we decided to capitalize on it."
Among Anadarko's apparent winning offers, only, two were for tracts without subsalt potential: East Cameron Blocks 169 and 170.
Its apparent winning bids for subsalt tracts included a $10.67 million solo offer for East Cameron South Addition Block 358, a $10.16 million joint bid with Phillips for Eugene Island South Addition Block 346, an $8.17 million solo bid for East Cameron South Addition Block 357, and three joint bids with Phillips of more than $7 million each for Eugene Island South Addition Block 345, Vermilion South Addition Block 375, and South Timbalier South Addition Block 299.
Phillips and Amoco, the gulf's other two most notable subsalt explorationists, were among the sale's leading bidders. Phillips had a net exposure of $23 million, solely on the strength of its nine joint blds with Anadarko. Amoco, meantime, racked up apparent winning solo and joint bids with combined net exposure of $15.8 million.
OTHER BRIGHT SPOTS
Subsalt bids didn't account for all the increased participation in Sale 147. Apparent high offers for acreage with no ties to the gulf's subsalt play about doubled total winning bids of 1 year ago.
Yet such was the stir caused by Sale 147's big subsalt offers that observers were second guessing bids of companies that professed no immediate interest in the play.
Samedan Oil Corp., Ardmore, Okla., and Energy Development Corp. (EDC), Houston, outbid Phillips and Anadarko for two tracts with subsalt potential. The two companies apparently won Vermilion South Addition Block 358 with a 50 50 offer of $2,555,550 and Vermilion South Addition Block 374 with a 50 50 bid of $1,425,450.
Deep water also received attention at the sale. BP Exploration & Oil Inc., Cleveland, had apparent high offers totaling $4,152,900 for 22 tracts in the Green Canyon, Mississippi Canyon, and Viosca Knoll areas. All the tracts were in water deeper than 1,680 ft., including several Mississippi Canyon blocks in 6,000 8,400 ft of water.
Ten of Shell Offshore Inc's 28 apparent high bids covered deepwater tracts. Shell's net exposure on high bids amounted to $13.38 million.
Chevron U.S.A. Inc. had solo bids that apparently won two tracts with subsalt potential: South Timbalier Blocks 155 and 181. Chevron also teamed up with Amoco to apparently win two other subsalt prosects, a 50 50 offer of $189,777 for Eugene Island South Addition Block 375 and a $604,677 joint bid for Eugene Island South Addition Block 347. The latter bid was 33.33% Chevron and 66.67% by Amoco.
In addition, BHP Petroleum (Americas) Inc. teamed with Chevron on five of seven apparent winning bids for Mississippi Canyon tracts in 2,150-4,320 ft of water.
COMPETITION HEATING UP
Tactics by companies like Zilkha Energy Co., Houston, added zest to competition in Sale 147.
Jack Holmes, Zilkha's president and chief operating officer, said the company again this year focused on acquiring a large number of tracts with low or minimum bids, mostly in the East and West Cameron, South Marsh Island, and Eugene Island areas.
"We basically were looking at open blocks in areas where we have had success in the past, where we have access to good data, and on tracts where we feel we can develop drillable prospects," Holmes said. "Typically, most of the areas where we're operating tend to be gas prone, but we don't really pick oil or gas, one versus the other."
Zilkha apparently was successful on 29 of 48 bids with a net exposure of $5.3 million.
The average number of bids/tract at Sale 147 was 1.595, up from 1.3 last year at Sale 142.
Among highly sought after tracts:
- Phillips and Anadarko topped six other companies on Vermilion South Addition Block 375 with an apparent winning bid of $7.256 million.
- Kerr McGee Corp. topped six other bidders with a $1.1 million offer for Ship Shoal South Addition Block 241.
- Anadarko won East Cameron South Addition Block 357 with an apparent high bid of $8,168.850, topping five other offers.
In addition, six tracts received five bids and 17 tracts four bids.
GAS INSPIRED BIDDING
Many regarded Sale 147 as if it were two parallel events, one featuring companies pursuing subsalt acreage and the other companies accumulating small prospects for low bids, which can be developed relatively quickly.
"Some companies were shooting with a rifle and some with a shotgun," Schwarz said.
Anadarko's Taylor said Sale 147 was four times bigger than Sale 142 last Near because of higher gas prices and recent technological innovations that help control risks. A lot of smaller companies alone and in groups bid on 10 30 bcf prospects indicated by seismic bright spots that fit the economics of shallow water, he said.
"With gas prices at $2/Mcf, the economics and rate of return are excellent. Properties like that should be in everybody's portfolio," he said. "A lot of companies are making that play."
Taylor said the high participation in Sale 147 indicated the Gulf of Mexico in a sense is being reborn for independent companies.
"With the dispirits of the majors, the independents have a play to make out there," he said. "Whether with little oil or gas fields, it doesn't really matter. The gulf is becoming a playground for independents like never before."
ANADARKO'S SUBSALT PLAY
Taylor said Anadarko's raid on subsalt acreage in Sale 147 won't change its exploration plans in the gulf. The company this year expects to spend about $75 million drilling four or five subsalt prospects in the Gulf of Mexico and an equal number of conventional gas wells.
"We still could start four or five projects in calendar 1994, but we probably need to reevaluate which ones we're going to drill," Taylor said. "We might own prospects how that are important enough to drill before the ones we were planning."
Anadarko is a partner with 37.5% interest in the gulf's only commercial subsalt discovery, the 16,500 ft Mahogany wildcat in 370 ft of water on Ship Shoal South Addition Block 349. Mahogany operator Phillips holds a 37.5% interest in the play, which includes Ship Shoal South Addition Block 359, and Amoco the remaining 25%. The companies last fall disclosed test flows amounting to 7,256 b/d of oil and 9.944 MMcfd of gas through a 1/2 in. choke with 7,063 psi flowing tubing pressure (OGJ, Oct. 11, 1993, p. 30).
CURRENT SUBSALT DRILLING
In addition to Anadarko's apparent winning bid for Block 337, Anadarko and Amoco in Sale 147 had an apparent winning bid of $706,277 for Ship Shoal South Addition Block 338. Taylor said Blocks 337 and 338 are critical components of the Mahogany structure.
Anadarko also holds interests in two subsalt wildcats under way in the gulf. The company is operator of the 16,500 ft Mesquite wildcat spudded Feb. 20 in about 270 ft of water on Vermilion Block 349. Anadarko and Phillips each own a 50% interest in the project.
Phillips is operator of the other subsalt wildcat, Teak, which was spudded in late October 1993 on South Timbalier Block 260. The tight hole is drilling to 18,500 ft on a three tract prospect that includes South Timbalier Blocks 259 and 283.
