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Posts Tagged ‘Byron Energy’

How much of the decline in shelf bids is attributable to higher royalty and rental rates?

Posted in CCS, decommissioning, energy policy, Gulf of Mexico, Offshore Energy - General, Regulation, tagged , , , , , , , , , , on March 19, 2024| Leave a Comment »

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 saleshelf blocks with bids
(excluding CCS bids)		sum of high shelf bids
($million, excluding CCS bids)
25746$8.1
25929$4.1
26113$1.7
The royalty rate for shelf production jumped 50% from sale 257 to sales 259 and 261

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.

CompanyBlockhigh bid ($)
per acre ($)		date accepted
ByronSM 60128,750
25.75		2/2
ByronSM 70182,235
33.32		2/20
CantiumGI 35125,000
25.00		2/20
CantiumGI 36125,000
25.00		2/20
CantiumMP 314125,000
25.00		3/12
CantiumSP 63125,000
25.00		3/12
ArenaEI 231135,000
27.18		2/20
ArenaEI 277135,000
27.18		2/20
ArenaEI 281135,000
27.18		2/20
ArenaEI 340135,000
27.18		2/20
ArenaEI 343135,000
27.18		2/20
ArenaWD 119135,000
26.75		3/12
FocusV 152121,152
25.16		2/20
Repsol36 CCS bids187,200 (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%).
  • Reconsider the rental rate scheme for shelf leases.
  • 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.

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Sale 261: Successful contrarians continue to see value in leases on the Gulf of Mexico shelf

Posted in Gulf of Mexico, Offshore Energy - General, tagged , , , , on January 10, 2024| Leave a Comment »

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

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. 

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?

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Saluting the contrarian GoM producers: 11 operators are producing more nonassociated (gas-well gas) than associated (oil-well gas)

Posted in energy policy, gas, Gulf of Mexico, natural gas, Offshore Energy - General, tagged , , , , , , , , , , , , , on January 11, 2023| Leave a Comment »

Offshore gas has important environmental advantages, particularly nonassociated gas-well gas (GWG). While the GoM production chart (below) is not pretty, there are signs that gas production may have bottomed and is slowly rising. This is largely due to growth in oil-well gas (OWG) associated with deepwater oil production.

A successful offshore program requires a mix of strategies, and it is encouraging that companies are still pursuing natural gas on the GoM shelf. The second chart (below), based on BOEM data, shows 2022 YTD (probably through Oct.) GWG production for the 11 companies that (1) produced more GWG than OWG and (2) produced more than 1 BCF of GWG.

Interestingly, 100% of the gas produced by Contango, Samchully, and Helis in 2022 was from gas wells. Contrast this with bp, the third largest GoM gas producer. None of bp’s gas production was from gas wells.

One has to wonder about the extent to which deepwater gas reservoirs are being stranded due to the less favorable economics. Preventing such resource losses was once an important regulatory consideration given the conservation mandate in the OCS Lands Act and the importance of maximizing the public benefit. However, current policy, as expressed in the proposed 5 year leasing plan, is to phase out offshore production rather than sustain it. This is difficult to reconcile.

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