Gulf lease sale shows economic promise
The recent U.S. Department of the Interior oil and gas lease sales in the Gulf of Mexico bode well for the south Louisiana energy sector, according to local and industry experts.
According to the Associated Press, the sale, which occurred in the Mercedes Benz Superdome, offered 7,434 tracts covering about 38 million acres, and 593 bids were submitted by 48 companies for 454 tracts. The blocks are located from three to about 230 miles offshore.
The lease sales brought in $1.7 billion in winning bids Wednesday. This was the second lease sale in the Gulf since the Deepwater Horizon explosion, the other one taking place in December 2011. That sale covered western areas of the Gulf and brought in $337.7 million in high bids.
Federal officials estimate the region contains close to 31 billion barrels of oil and 134 trillion cubic feet of natural gas that are currently undiscovered and technically recoverable.
This was the first federal auction of offshore petroleum leases in the same area where the Deepwater Horizon exploded in 2010.
According to a release by U.S. Sen. David Vitter (R.-La.), since President Barak Obama took office, offshore lease sales have gradually declined each year, depriving the U.S. Treasury of a major source of revenue. During 2008, $9.4 billion was generated in new offshore lease bids. That dropped to $1.1 billion during the recessionary year of 2009, $979 million in 2010, then to $36 million in 2011.
But the AP reported lease sales Wednesday reversed this trend as one of the strongest in U.S. history.
BP Exploration & Production Inc., Shell Offshore Inc., Statoil Gulf of Mexico LLC, and Chevron USA Inc. led the pack of companies submitting bids. BP had 43 high bids totaling $239.5 million. It was the second-highest number of winning bids after the Apache Corp.’s 61 bids.
According to Robert Focha, Bollinger Shipyards Inc.’s executive vice president of sales and marketing, the strong Gulf of Mexico lease sale is a positive sign of improving economic conditions in the local oil and gas sector.
He said the new permitting process is still very problematic for the industry, but the sale of leases likely means more work for the company’s fleet.
“The permitting process has to improve before we can move forward, but if the feds are revitalizing activity in the shelf and in deep waters in the Gulf of Mexico, this is good for south Louisiana and the oil and gas industry as a whole,” he said. “We would specifically like to see an increase in shelf activity because this will improve the utilization of support vessels for that sector of the industry. This will definitely help Bollinger as more of our vessels go back to work.”
Focha said he expected the increase in sales to have a positive impact on Bollinger in the first or second quarter of 2013, but only if the permitting process was not dragged out.
He said being in an election year, he did not expect to see federal officials relax the permitting process very quickly.
“We are in an election year, so we all know what that means,” Focha said.
As Bollinger and other local companies keep an eye on the positive oil and gas industry indicator locally, others are watching the situation from a state level.
Louisiana Oil and Gas Association President Don Briggs agreed the sales were “definitely a positive sign for the oil and gas industry in south Louisiana” with substantial sales numbers.
“It bodes well for drilling and continued growth in the Gulf of Mexico,” he said. “The state should start seeing the positive impacts of the oil and gas lease sales about four years from now. The larger companies already have a lot of data on the leases they bid for, and the current high oil prices are motivating the larger players to act relatively quickly on the leases.”
The only negative aspect of the sales Briggs noticed was the actual number of companies bidding.
He attributed this to uncertainty in the permitting process and opposition to the industry in Washington, D.C., making smaller independent oil and gas companies hesitant to bid on leases.
“There were about 58 companies bidding before the Macondo well blew out in 2010; in 2012, there were only 48 or 49,” he said. “The drop in numbers came from smaller independent companies not bidding on leases because they don’t have a sense of certainty in costs.”
Briggs said for these companies to come back, there has to be continuity in permitting regulations as well as certainty in the market.
He explained for decades, the GOM was a safe harbor for oil and gas companies looking to avoid regional and international turmoil in other parts of the world. Before the Macondo well blew out, a lot of companies were coming back to the gulf, but that changed in 2010.
“For smaller companies to again begin bidding on Gulf leases, there will also have to be a friendlier political environment again in the U.S. toward the industry,” he said.