Will the oil and gas lease sale boldly named Big Beautiful Gulf 1 (BBG1) live up to its grand name? Given the more favorable lease terms and the 2 year gap since the last sale, BBG1 should surpass the previous 3 sales (table below). Questions:
Which majors will be the most active bidders? Chevron? Shell? BP? Oxy/Anadarko?
Will former Gulf of Mexico stalwarts Exxon and Conoco Phillips participate for the first time in years? Probably not, but US super-majors should participate in the US offshore program.
How many companies will submit bids? Would like that to be a number >35.
How many tracts will receive bids? A number >300 would be very encouraging.
Will the total high bids exceed $400 million?
Will we see an increase in shelf interest?
Which independents will be the most active?
After the not-so-clever carbon disposal acquisitions in the last 3 sales, will the number of carbon disposal bids be zero? For the first time ever, the Federal government felt compelled to stipulate the obvious (see the proposed notice for OCS Sale 262) – that an Oil and Gas Lease Sale is only for oil and gas exploration and development.
See the summary data below for the last 3 Gulf lease sales. We’ll fill in the blanks next week.
Sale No.
257
259
261
BBG1
date
11/17/2021
3/29/2023
12/20/2023
12/10/2025
companies participating
33
32
26
total bids
2233
2842
3161
tracts receiving bids
2143
2442
2751
sum of all bids $millions
198.5
309.8
441.9
sum of high bids ($millions)
101.7
263.8
382.2
highest bid company block
$10,001,252.00 Anadarko AC 259
$15,911,947 Chevron KC 96
$25,500,085 Anadarko MC 389
most high bids company sum ($millions)
46 bp 29.0
75 Chevron 108.0
65 Shell 69.0
sum of high bids ($millions) company
47.1 Chevron
108 Chevron
88.3 Hess
most high bids by independent
14-DG Expl.
13-Beacon 13-Red Willow
22-Red Willow
1excludes 36 leases improperly acquired for carbon disposal purposes; 2excludes 69 leases improperly acquired for carbon disposal purposes; 3excludes 94 leases improperly acquired for carbon disposal purposes
“Natural gas and LNG are fast becoming the gravitational center of the global energy system, but some energy experts said the world is only beginning to grasp the scale of what’s to come.” ~Natural Gas Intelligence
Demand and high well producibility are stimulating exploration in the high pressure, high temperature Western Haynesville (Texas) and other ultradeep onshore gas prospects. Is it time to revisit ultradeep gas on the Gulf of America shelf? See the above targets map from 2004.
20 years ago Newfield, Exxon, and McMoRan drilled pioneering ultradeep wells targeting gas-prone reservoirs below salt welds in Miocene and older formations (diagrams below). The water depths were <100 feet but well depths exceeding 30,000 feet, and high temperatures and pressures, pushed the limits of drilling technology at the time. Noteworthy wells:
Blackbeard West (Exxon): Spudded in early 2005 in 70 feet of water in South Timbalier Block 168. The target was gas in Miocene sands at 27,000-32,000 feet total depth. Drilling reached 30,067 feet by 2006, but was prudently suspended due to extreme pressures, temperatures (up to 600°F), and technical challenges with equipment.
Blackbeard West, part 2: In 2008, McMoRan re-entered the well with upgraded equipment and drilled to a record 32,997 feet below the mudline. They encountered hydrocarbon shows in multiple zones, including potential gas pay in Middle and Deep Miocene sands below 30,000 feet, validating the ultradeep concept.
Followup McMorRan wells:
Blackbeard East (2010-2011): Drilled to 33,400 feet in South Timbalier Block 144, logged potential hydrocarbons in Sparta and Vicksburg sands.
Davy Jones (2009-2010): South Marsh Island Block 230 in 20 feet of water; reached 29,122 feet; discovered gas in Wilcox sands, but faced flow-testing challenges.
Lafitte (2011): Eugene Island Block 223, found additional pay in ultradeep Miocene zones. These wells targeted gas reservoirs but encountered operational hurdles.
Also, note that a company targeting hydrocarbons below 25,000 feet (true vertical depth subsurface) may earn an additional 3 years on their lease. (See the Notice for next week’s lease sale.) Will improved technology and demand expectations finally open the ultradeep gas frontier?
In JPMorgan’s view, the stage is set for a potential decline of as much as 50% in oil prices through the end of 2027, taking Brent crude down to the low $30s per barrel range from its current level of around $63.50.
Will bearish forecasts by JPMorgan and others temper bidding at the highly anticipated, and long awaited, Gulf lease sale to be held on 12/10/2025? Probably not for these reasons:
Given the longer term nature of deepwater development, production will not begin for years following lease issuance. Note that anticipated first production for 3 new high-pressure deepwater projects, Kaskida, Sparta, and Tiber, will be 23, 16, and 21 years after the field discovery dates.
To the extent that price forecasts are reliable at all (see no. 9 in the image below), the degree of uncertainty for longer term forecasts is particularly high.
The sale has to live up to its name Big Beautiful Gulf 1 (BBG1). 😉
The Gulf oil patch got a pass in 2025! 2026 is anyone’s guess.
As was the case in 2023, there were no tropical storm production shut-ins in the Gulf in 2025. Per the chart below derived from BSEE data, only 4 tropical storms caused platform shut-ins in the past 5 years. This lull followed a 6-storm year in 2020.
The Minerals Management Service Technology Assessment and Research Program began closely studying hurricane damage to offshore facilities following Hurricane Andrew in 1992. Dr. Charles Smith was a leader in these efforts. Attached is a comprehensive study report on Andrew’s effects on offshore platforms. Three background paragraphs are pasted below.
A specific description of the proposed Florida buffer in the Eastern Gulf is found in a footnote on page five of the Draft Proposed Program (DPP):
2 Includes a 100-mile coastal buffer off the coast of Florida and the area eastward of a line extending south from a point approximately 25 miles west of Tallahassee, Florida.
Draft Proposed Program2020 Trump Withdrawal
The 100 mile buffer seems like a reasonable proposal that minimizes the risk of coastal impacts without significantly reducing the oil and gas resource potential. However, the 125 mile buffer established in the Gulf of Mexico Security Act (2006) and the 2020 Trump withdrawal (see the comparison above) has become sacrosanct, and Gov. DeSantis and the Florida delegation oppose any change:
President Trump’s 2020 memorandum protecting Florida’s eastern Gulf waters represents a thoughtful approach to the issue.
The press release and full program are linked. It looks like the most recent leaks were accurate. See the maps below with the locations and dates. This will stir the pot!
The COS has been effective in strengthening corporate Safety and Environmental Management Systems, influencing the industry’s safety culture, and sharing best practices and lessons learned. These are important accomplishments.
The COS has fallen short in gathering the data needed to assess the offshore industry’s safety performance. As is the case with most voluntary reporting programs, data completeness and accuracy issues limit the significance of COS performance reviews.
The COS uses accepted performance indicators and a logical classification scheme.
COS reports that their members accounted for 78% of OCS oil and gas activity in 2024. This is accurate when cross-checked with BSEE hours worked data. However, the % of hours worked is not a good measure of the % of incidents reported in any category.
Only two drilling contractors – Helmerich & Payne and Valaris – are members. Major contractors like Noble, Transocean, and Seadrill are not members. Their incidents will thus not be reported if they are not working for a COS member.
No production contractors are COS members. These companies conduct most of the platform operations on the shelf, where many of the lease operators are not COS members.
Pacific and Alaska Region operators do not participate.
Looking only at fatalities (table below), the most important and easily verified incident category, there are troubling omissions:
COS reports no 2024 fatalities when in fact there was a fatality during an operation for a COS member.
COS reports no 2022 fatalities when there were actually five. A workover incident took the life of one worker, and four died in a helideck crash on an OCS platform. In both cases, the facility operator was a non-member company.
COS records one 2021 fatality, but fails to include a 2021 Fieldwood fatality. There were also6 “non-occupational” fatalities on OCS facilities in 2021, as classified by BSEE. Given the importance of worker health (the H in HSE), such a high number of non-occupational fatalities should be of interest industry-wide.
The COS report includes only two of the six 2020 fatalities, 2 of which were classified by BSEE as non-occupational.
The bottom line is that COS accounted for only 3 of 12 (25%) occupational fatalities during the 2020-24 period. There were at least 20 fatalities if you include the non-occupational incidents.
fatalities per COS
occupational fatalities (from BSEE data)
non-occupational fatalities (from BSEE data)
2024
0
1
?
2023
0
0
?
2022
0
5
?
2021
1
2
6
2020
2
4
2
The offshore industry is only as good as its worst performer, so complete participation is essential. Voluntary reporting is seldom complete reporting, because some companies are more concerned about confidentiality than completeness and information sharing.
For industry reporting programs to be comprehensive and credible:
The entity receiving the reports and managing the data must be independent and not affiliated with an industry advocacy organization.
All operating companies must participate and complete reporting must be required. This can be accomplished contractually. If necessary, the regulator can require participation (either as a separate regulation or as a SEMS element).
Company incident submittals should be audited by the independent entity.
Fees should be solely for the purpose of supporting the independent reporting system.
For SP1 and SP2 incidents (per the COS classification scheme), the names of the responsible companies should be included in the performance reports. The current COS system prioritizes confidentiality over accountabiity and information sharing.
The first ever Gulf of America oil and gas lease sale 😉 will be held on Dec. 10, 2025. Instead of numbering the sale sequentially (i.e. Sale 262), the sale has been designated OCS Oil and Gas One Big Beautiful Bill Act Lease Sale 1 (BBG1). 🙄 This change is a bit too cute for some of us old-timers, but we’ll judge the sale by its results, not its name.
The Notice of Sale is attached. The terms are very attractive, with the lowest allowable royalty rate (1/8th) on all shelf and deepwater leases. Note the comparison of royalty rates in the table below. The 6.25% difference for deepwater leases is substantial when you consider their high production potential.
Gulf Sale No.
Date
% royalty: <200m water depth
% royalty: >200m water depth
256
11/18/2020
12.5
18.75
257
11/17/2021
12.5
18.75
258
12/30/2022
18.75
18.75
259
3/29/2023
18.75
18.75
261
12/20/2023
18.75
18.75
BBG1
12/10/2025
12.5
12.5
The rental rates for the BBG1 Sale are also very attractive compared to Sale 261:
Water Depth
Sale 261 rental rates ($/ac)
BBG1 Sale rental rates ($/ac)
0 to <200m
years 1-5: $10 year 6: $20 year 7: $30 year 8+: $40
years 1-5: $7 year 6: $14 year 7: $21 year 8+: $28
200 to <400m
years 1-5: $16 year 6: $32 year 7: $48 year 8+: $64
years 1-5: $11 year 6: $22 year 7: $33 year 8+: $44
400+ m
years 1-5: $16 year 6: $22 year 7: $22 year 8+: $22
years 1-5: $11 year 6: $16 year 7: $16 year 8+: $16
Will the bidding reflect the very favorable lease terms?
To date, BSEE has used carryover funds and offsetting collections from inspection, rental, and cost recovery fees to continue their priority permitting and inspection programs during the govt shutdown. However, these funds are limited.
At some point, BSEE will have to stop issuing new permits. If the shutdown continues, the next step could be to curtail drilling and production operations. Needless to say, this would not be completely unacceptable.
In the meantime, BSEE employees continue to work without pay. Flying offshore everyday to inspect operations is no picnic and can be hazardous. I lost a colleague in a helicopter crash and others have been injured. It’s shameful that these people are not being paid while members of congress are!
Bud's Offshore Energy (BOE) 