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US holds first post-Macondo offshore lease sale

Wed, 14 Dec 2011 20:40 GMT

Source: reuters // Reuters

* ConocoPhillips outbids Union, BP for deep tract

* Keathley Canyon block 95 most actively bid

(Adds details, analyst comment)

By Bruce Nichols

HOUSTON, Dec 14 (Reuters) - A federal sale of drilling rights for deepwater tracts in the Gulf of Mexico drew $337 million in high bids from 20 oil companies such as ConocoPhillips and BP Plc Wednesday, a sign the U.S. oilpatch is rebounding from the disastrous 2010 oil spill.

The U.S. Interior Department auctioned off rights to drill in the waters of the western Gulf of Mexico off Texas in the first such sale since BP's deepwater Macondo well ruptured and sparked an explosion that killed 11 rig workers and spilled nearly 5 million barrels of oil.

The auction of tracts in western Gulf Sale 218, postponed from August, was the first chance to gauge oil industry interest in drilling in the key U.S. offshore basin after a post-spill federal regulatory crackdown slowed drilling permits to a trickle.

Interest was high, judging from the initial bids submitted by 20 U.S. and international oil companies, read in an auction held at the Superdome in New Orleans.

High bids totaled $337 million, nearly three times the total in the last western Gulf sale in August 2009. Total bids overall were $712 million, nearly five times the total in the 2009 sale.

"It's definitely encouraging," said Mohammad Rahman, an analyst at energy consultancy Wood MacKenzie. "If you compare to pre-Macondo, we're probably not there yet, but by all means the trend is toward that point."

On offer were 3,918 unleased blocks stretching over 21 million acres (8.5 mln hectares), larger than the U.S. state of South Carolina.

"What these results demonstrate is that there is a great interest in continuing to develop oil and gas in the Gulf of Mexico," Interior Secretary Ken Salazar said.

Scientists at the National Academy of Engineering and National Research Council issued a report on Wednesday that criticized U.S. offshore drilling rules as too lax.

Salazar defended government-led reforms.

"We are much better off today than we were in 2010," Salazar said in response to the report, noting that the government's offshore regulatory push is still ongoing.

The most competitive bidding was for an offshore block in Keathley Canyon, which drew seven bids.

ConocoPhillips, which is looking to bulk up its offshore acreage where it expects drilling activity to rise, bid $103 million for the block, edging out Union Oil, BP, Hess Corp , Shell and others. The block is just west of BP's highly touted Tiber oil find in which ConocoPhillips is a partner.

"Western Gulf lease sales typically garner lower dollar values and are less interesting than Central Gulf of Mexico sales. However, we are watching this one more closely than typical to get a feel for who is willing to participate," investment bankers Tudor, Pickering Holt & Co said in a note.

Even though BP faces a barrage of civil suits and possible criminal prosecution from the U.S. government and injured rig workers, the auction was a chance to grow its position as top operator in the Gulf, a region key to future U.S. and global energy supplies.

"We intend to be active in all facets of the Gulf of Mexico -- explorer, developer, operator and interest owner," BP spokesman Daren Beaudo said. "We remain the leading lease holder and we have a very strong prospect inventory."

BP is the biggest Gulf producer, accounting for about a quarter of the oil and natural gas output from a region that generates about a third of U.S. domestic production. (Additional reporting by Ayesha Rascoe in Washington and Anna Driver in Houston; Editing by Chris Baltimore, Marguerita Choy and Dale Hudson)