$2.9 billion in high bids put up for petro leases

(AP) Recent major discoveries and continued high petroleum prices drove oil and gas explorers back to the Gulf of Mexico last Wednesday as companies put up $2.9 billion in high bids for 723 tracts off the coasts of Mississippi, Alabama and Louisiana.

It was the largest total of high bids for a Gulf lease sale since 1983, when the Minerals Management Service conducted an initial sale of tracts across the entire Gulf. Since then, the area has been divided into three regions. The sale was for the central Gulf.

Winning bids in the tens of millions of dollars were common, with nine coming in above $50 million each.

The largest single bid was issued by Shell Offshore Inc., a unit of Royal Dutch Shell PLC, which bid $90.5 million for a tract in Walker Ridge, the ultra-deepwater area where a huge oil discovery was reported last fall by Chevron Corp. Chevron has estimated the 300-square-mile region where its test well sits could hold between 3 billion and 15 billion barrels of oil and natural gas liquids.

The United States consumes roughly 5.7 billion barrels of crude oil in a year.

Federal officials said that in addition to recent discoveries, petroleum companies may have focused more on the Gulf because of recent problems in dealing with overseas nations.

“It’s perhaps more uncertain to develop over there,” said Assistant Interior Secretary C. Stephen Allred. “It’s made U.S. waters more attractive.”

Although petroleum companies have to go beyond immediate oil prices in deciding on deepwater projects, MMS director Randall Luthi said prices had remained high enough for long enough for explorers to feel confident about tackling additional long-term projects.

“The companies feel it’s worth the investment, that they’ll get it back,” Luthi said.

Following the pattern of recent lease sales in the Gulf, most of the bidding was concentrated on deepwater tracts and those in shallow waters close to shore. Of the tracts receiving bids, 477 were in ultra-deep water, or in depths of 800 meters or greater. Such leases can take years to bring into production.

Another 187 tracts were in 200 meters or less of water, considered prime ground for the development of natural gas deposits deep in the earth. Easy-to-reach gas was produced years ago and the leases were largely abandoned before advances in technology and high gas prices lured exploration companies back.

Eighty-four companies participated in the bidding. Chris Oynes, associate director of the MMS offshore program, said interest in close-to-shore gas resulted in 14 small, independent companies participating in the sale for the first time.

In addition to having the largest single high bid, Shell Offshore submitted the largest total of high bids with $554.6 million, nearly twice that of Chevron USA Inc., a unit of Chevron Corp., which was the second-highest bidder with $283.4 million in winning bids.

The MMS said all bids totaled $5.2 billion. The agency will examine the winning bids for fair-market value before issuing the leases, which range in length from five to 10 years.