Notes: The Gulf keeps on rollin’ – this was the 137th Gulf lease sale. Congrats to Bryan Domangue on being named Gulf of America Regional Director for the Marine Minerals Administration!The WWII Museum in New Orleans was a nice venue for the sale.
A post from last March discussed the high and seemingly unfair royalty and rental rates for new leases in the shallow waters of the Gulf of Mexico shelf. A 50% increase in the shelf royalty rate for lease sales 259 and 261 combined with rather punitive rental rates have likely contributed to the sharp decline in bidding for shelf lease blocks (see table below).
This decline in shelf bidding is unfortunate because the smaller companies that operate in the shallow waters of the Gulf are critical to sustaining the production infrastructure. These companies are also significant producers of environmentally favorable nonassociated (gas-well) natural gas.
lease sale
shelf blocks with bids (excluding CCS bids)
sum of high shelf bids ($million, excluding CCS bids)
BOEM has completed their evaluation of the Sale 261 shelf bids (see below). Each of these blocks received only a single bid, and every bid was accepted. Ironically, the invalid CCS bids for blocks that have no oil and gas value, were the first to be accepted. This was also the case for Sales 257 and 259.
Company
Block
high bid ($) per acre ($)
date accepted
Byron
SM 60
128,750 25.75
2/2
Byron
SM 70
182,235 33.32
2/20
Cantium
GI 35
125,000 25.00
2/20
Cantium
GI 36
125,000 25.00
2/20
Cantium
MP 314
125,000 25.00
3/12
Cantium
SP 63
125,000 25.00
3/12
Arena
EI 231
135,000 27.18
2/20
Arena
EI 277
135,000 27.18
2/20
Arena
EI 281
135,000 27.18
2/20
Arena
EI 340
135,000 27.18
2/20
Arena
EI 343
135,000 27.18
2/20
Arena
WD 119
135,000 26.75
3/12
Focus
V 152
121,152 25.16
2/20
Repsol
36 CCS bids
187,200 (1) 32.50
1/23
(1) All of the Repsol bids were $32.50/ac. Total bids varied by block size, but were $187,200 for the 5760 acre blocks.
Suggestions:
Seek a legislative fix to the Inflation Reduction Act😉 provision that established a 1/6 royalty rate floor for all OCS leases (formerly the royalty rate was 1/8 for leases on the shelf).
In the interim, administratively lower the royalty for shelf leases to 1/6 (from 18 3/4%).
For future oil and gas lease sales, accept all high bids that exceed the specified minimum bid (currently $25/ac for the shelf). The Gulf of Mexico shelf has been extensively explored and developed for 70 years. While prospects remain, they are generally marginal as evidenced by the recent lease sale results. Fair market value is what any company is willing to bid (above the specified minimum).
Focus on assuring that lease purchasers are technically qualified to minimize safety risks, and that financial assurance for decommissioning (for new and existing leases owned by the high bidder) has been fully addressed.
Sale 261: single bid tracts in blue, multi-bid tracts in red (2), green (3), and purple (5)
The interest of the majors and most independents has shifted entirely to deepwater prospects, as evidenced by the above graphic and sale data. Nonetheless, a few resourceful companies continue to find value in the shallow waters of the continental shelf.
“There’s an art to finding oil—particularly in the Gulf of Mexico. After decades of drilling, this world-class basin still holds vast potential for those skilled enough to unlock it. Arena energy is applying expert insight and advanced technology to identify new Gulf of Mexico oil and gas exploration opportunities. This is the art of oil finding in the 21st century.“
Arena Energy, a successful shelf operator for a quarter of a century, was the leading shelf bidder with 6 high bids. In 2023 Arena was once again the most active shelf driller with 20 well starts. They claim a 94% drilling success rate. Arena currently operates 123 platforms and is the GoM’s 7th ranked natural gas producer and the 11th ranked oil producer.
Cantium, another leading shelf operator, was the high bidder on 4 tracts. Cantium drilled 10 wells in 2023 and currently operates 86 platforms. Cantium claims to maintain “the highest level of operational safety and regulatory compliance by maximizing efficiencies and empowering employees,” and publicly available compliance data bear that out. Cantium was a BOE Honor Roll company for 2022, and a preliminary look at the data indicates that their 2023 performance was also excellent. Cantium is ranked 18th in both oil and natural gas production.
Byron Energy, which is headquartered in Australia, is the only international company investing in the GoM shelf. Byron was the high bidder on 2 tracts and currently operates 2 platforms. The company drilled 3 wells in 2023. Byron intends to continue focusing on the shallow waters of the Gulf.Â
Thoughts on the attributes of a successful shelf operator:
Bid alone and conduct operations independently to facilitate efficiency and timely decisions.
Lean and flat organizational structure for optimal communication and effective project management.
Skilled staff and state-of-the art exploration technology.
Outstanding contractor selection and oversight.
Safety, environmental, and compliance leadership, absent which your company won’t be around for long.
Think small. Gleaning old fields and producing modest new discoveries can be profitable!
Control growth and debt. Busts follow booms and highly leveraged companies are the most vulnerable.
Study the successful shelf operators and the failures. What did they do right and wrong?
Bud's Offshore Energy (BOE) 