The Bureau of Ocean Energy Management (BOEMRE) held its Central Gulf of Mexico lease sale on March 20, 2013, generating $1.2 billion for the U.S. government. Approximately 52 companies submitted 407 bids on 320 tracts off the coasts of Louisiana, Alabama and Mississippi. The tracts, covering more than 1.7 million acres and are in water depths of nine to more than 11,115 feet. OAG360 notes that deepwater blocks in water depths of 1,600+ meters were 41% of the total 320 blocks that received bids.
All of the leases carried an 18.75% royalty rate. Here you can find a summary of sale statistics.
In 2012, the Central Gulf of Mexico lease sale fetched 593 bids on 454 tracts totaling $1.7 billion in high bids. In 2009, the Central Gulf of Mexico lease sale fetched 476 bids on 348 tracts totaling $703 million in high bids.
Statoil Gulf of Mexico LLC and Samson Offshore, LLC were the highest bidder per unit in the 2013 sale paying $14,199.31 per unit on a 5,670 unit tract for a total purchase price of $81.8 million. This tract was the Walker Ridge block 271. OAG360 notes that Chevron (ticker: CVX) and Statoil (ticker: STO) recently announced promising discoveries in the Walker Ridge area.
Top bidders (in order) with respect to total dollars spent at the sale include:
- Exxon Mobil Corporation (ticker: XOM) – $220,254,445 in winning bids
- Shell Offshore Inc. (ticker: RDS.B) – $139,825,720 in winning bids
- BHP Billiton Petroleum (ticker: BHP) – $107,160,248 in winning bids
- Venari Offshore LLC – $86,796,442 in winning bids
- Plains Exploration & Production (ticker: PXP) – $82,575,000 in winning bids
Other independents that were active at the sale include:
- Stone Energy Offshore, L.L.C. (ticker: SGY) – $38,368,811 in winning bids
- EPL Oil & Gas, Inc. (ticker: EPL) – $2,143,100 in winning bids
- Contango Operators, Inc. (ticker: MCF) – $1,743,331 in winning bids
- Saratoga Resources, Inc. (ticker: SARA) – $880,000 in winning bids
- Energy XXI GOM, LLC (ticker: EXXI) – $846,595 in winning bids
- McMoRan Oil & Gas LLC – $430,250 in winning bids
Here is a full list of winning bids by company.
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OAG360 Companies Active in the Lease Sale
Saratoga Resources concentrates on abundant, low-risk drilling opportunities located in the transition zone off the coast of Louisiana. In some places, including the company’s Grand Bay field, approximately 64 stacked pay sands exist with wells that have been producing for over 50 years.
In the lease sale, SARA won four leases at the Central Gulf of Mexico Lease Sale 227 covering 19,814 net acres totaling $880,000(subject to approval of BOEMRE). In a news release highlighting the sale, Saratoga’s President, Andy C. Clifford, commented, “We are extremely pleased at the prospect of securing these four blocks in our first foray into the Gulf of Mexico Shelf. The leases include two in the Ship Shoal area and two in the Vermilion area. Our internal gross potential reserve estimates, as yet unaudited by third party engineers, relative to these blocks are 51.3 MMBOE, of which 5.4 MMBOE are expected to be qualified as proved undeveloped. We are attracted by the high liquid content of these reserves, which we estimate to exceed 8 MMBO of gross 3P reserves.”
Energy XXI uses an acquire and exploit growth strategy to build a geographically focused portfolio in the shallow water GOM. The company focuses on developing the acquired properties while ramping up a complementary exploration program designed to provide organic growth for the future.
On March 19, 2013, EXXI and Apache (ticker: APA) entered into an agreement to explore for oil and gas pay sands associated with salt dome structures on the central Gulf of Mexico shelf. The area of mutual interest (AMI) includes several salt domes within a 135 block area. In addition, Energy XXI has acquired a 25 percent working interest in 21 non-producing primary-term leases with Apache. A new wide azimuth seismic program is underway to define the potential of the AMI, covering approximately 633,000 acres.
In the lease sale, on this same 75%/25% basis, APA and EXXI were the high bidders on a total of 26,287 acres totaling approximately $2.2 million. On a 100% basis, Energy XXI also was the high bidder on approximately 4,220 acres for $302,242.
OAG360 Comments on the Gulf of Mexico
Super majors have long since realized the future oil potential within the Gulf of Mexico. The long lead times and huge amount of capital required to drill and place Gulf of Mexico wells on production has kept many smaller independent names out of the region. Not anymore.
While the market and the industry were rightly focused on the growth potential of resource plays, a quiet revolution was going on in the GOM. Several E&P companies stuck to what they knew best, and decided to make lemonade with the proverbial lemons the market had given them. And, recently the market has begun to reward them.
The chart below indexes the performance of six E&P companies compared to the S&P 500 for the eight months from June 1, 2012 to the end of January 2013. We chose to start our analysis period at June 1, 2012, because that was the approximate low point of the market before the current rally began to take off. During that time frame, the S&P 500 printed a respectable 17.2% gain, a very strong performance by nearly any measure. However, the “average” return for the GOM group noted below was 21.0%, and we note that four of the eight offshore E&P companies in our analysis beat the S&P.
EPL Oil & Gas Inc. bested the entire group with a 59.6% total stock price appreciation in the eight months ended January 31, 2013. Importantly, not all of the run-up in the GOM E&Ps was the result of commodity prices, as four of the eight GOM companies in our analysis delivered returns in excess of the 17.1% rise in crude oil prices (West Texas Intermediate), CL1 in the chart above.
The chart below plots the indexed performance of a market capitalization weighted index of eight GOM E&P companies (i.e., EPL, WTI, EXXI, CIE, PQ, SD, SGY and MUR), as compared to the S&P 500.
EnerCom’s GOM index posted a 21.4% gain during the measurement period, as compared to 17.2% for the S&P 500. We note that the EnerCom GOM index does not include McMoRan Exploration Company, which closed at $15.81 on January 31, 2013, a 79.3% gain over $8.82 on June 1, 2012, as the result of a buyout offer from Freeport-McMoRan Copper & Gold Inc. (ticker: FCX).
Activity Leads to Gains
Increased activity levels from the Gulf of Mexico translated into gains to the bottom line of both Halliburton (ticker: HAL) and Core Laboratories N.V. (ticker: CLB) in their fourth quarter results. Halliburton saw Completion and Production revenue in the fourth quarter of 2012 increase of $44 million, or 1%, from the third quarter of 2012 sourcing higher completion activity in the Gulf of Mexico as a key component of the increase. HAL also saw a an increase of $54 million, or 13%, from the third quarter of 2012 in its Drilling and Evaluation operating income in the fourth quarter of 2012 partially by increased demand for drilling services in the Gulf of Mexico. CLB, who reported the most profitable quarter ever in Q4’12, saw record demand for Core’s Reservoir Description reservoir fluids and advanced reservoir-rock properties technologies, especially for projects in the deepwater Gulf of Mexico, North Sea, Iraq, Africa, including offshore Gabon and Angola, the Middle East, and Asia Pacific. Deepwater projects account for 20% of CLB’s revenues.
Final Thoughts on the Gulf of Mexico
According to Credit Suisse’s September 2012 research report titled “Oil: Fundamentals & US Oil Production Outlook,” U.S. Gulf of Mexico (GOM) production could increase by 700,000 barrels per day between 2012 and 2018.
We believe a Gulf of Mexico revolution is emerging – and the groundwork will be led by the smaller independents.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. As of the report date, an employee of EnerCom has a long-only equity position in Core Lab and Apache.