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In the first auction for offshore drilling rights in the Gulf of Mexico's (GoM) prolific central region following the Deepwater Horizon rig disaster, the federal government attracted billions of dollars in bids. According to the U.S. Interior Department’s Bureau of Ocean Energy Management – which oversees offshore drilling – the lease sale collected more than $1.7 billion from oil and gas companies.
Energy majors Royal Dutch Shell Plc (RDS.A - Analyst Report), StatoilHydro ASA (STO - Analyst Report) and BP Plc (BP - Analyst Report) came out as the biggest spenders in the latest round of auction that put 39 million acres of prospective oil/gas development spread over 454 federally owned tracts in the central Gulf – generally regarded as the most promising area for drilling – up for sale. In all, the bureau received nearly 600 bids submitted by 48 companies.
The three firms mentioned above shelled out a total of almost $1 billion to get hold of 93 leases. In particular, Norway’s Statoil set a new record by offering $157 million – the highest since 1983 – for a single tract in the central Gulf’s Mississippi Canyon area, located south of Louisiana’s coastline.
The winning bids – worth $1.74 billion – are more than five times the roughly $340 million received in the previous federal sale (for the less-developed western part of the Gulf) in December 2011.
The offers will now be reviewed by the Bureau of Ocean Energy Management with the agency carrying out its own independent verification prior to actually awarding any leases. The successful names will be announced within 90 days following which the department will analyze the proposals before issuing drilling permits.
The strong response to the recent auction has been heralded as a sign of the central GoM’s attractiveness to Western oil companies and the region’s renaissance since the oil spill, which slowed down new offshore leases for deepwater drilling.
As a reminder, on April 20, 2010, offshore driller Transocean Ltd’s (RIG - Analyst Report) ultra-deepwater Horizon drilling platform, contracted to BP, sank following an explosion while operating in the U.S. GoM off the coast of Louisiana.
The incident killed 11 workers and spewed more than 200 million gallons of crude in what is touted as the country’s worst oil spill ever. Subsequently, a moratorium was imposed on offshore drilling at water depths of more than 500 feet in the region, which was lifted on October 12, 2010.
This badly dented activity in the Gulf. However, current exploration successes and enthusiasm about future prospects has driven demand for acreage in the region, as reflected by the tremendous response to the latest round of auction.
Moreover, energy outfits are now more confident about complying with the strict safety and environmental requirements for offshore operations that have been imposed in the aftermath of the BP oil spill.