Lease Sale - Finally!

The government finally held a lease sale for the Gulf of Mexico and it set records. They offered 7,434 blocks (a block is a 3 mi x 3 mi square) in the Gulf of Mexico between the Texas/Louisiana border and the Alabama/Florida border. 56 companies made 593 offers on 454 bocks which brought in a check for $1.7 Billion to the government. This money only gives the companies the right to drill for oil and gas for 5 to 8 years.

Here's how the numbers stacked up:

Statoil made the highest single bid of $157.1 Million for a single block. In total, they bought 26 blocks for $333.2 Million.

Shell spent the most, dropping $406.6 Million for 24 blocks.

BP spent $337.7 Million to acquire 43 blocks.

If you attend a lease sale, you will probably be bored to death as it involves a guy reading out the bids on all these leases. But the room is full of people who are involved in oil field poker game and want to see who did what. They studiously take notes on the results. It's most interesting when one company spends a lot of money to acquire a lease and leaves a lot of money on the table between his bid and the next highest.

An example is Mississippi Canyon 162. There were 7 companies trying to get this block. Chevron won it with a bid of $51.2 Million. The next highest bid was $40.7 Million, which means they over bid by about $10 Mil. The lowest bid was for $600,000. This could cause someone to wonder what Chevron saw that nobody else did. They won't know until they drill it, and then a geologist could either be a hero or looking for a new job.

It will take several years for these lease to be productive. First they have to line up budget funds and schedule drilling rigs. After drilling, they will need to evaluate the results and come up with development plans. But it's a good sign that the Gulf will be getting busy and that there will be new projects in the works.