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AUGUST 2008 ISSUE

OFFSHORE DRILLING
Will Congress end its ban on OCS drilling before George W. Bush leaves office?

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August 21, 2008

Western Gulf lease sale attracts big bids

If OCS areas that are currently off limits for offshore exploration are opened up, will there, in fact, be bids on them?

The answer would seem to be "yes," going on the results of yesterday's Western Gulf of Mexico Oil and Gas Lease Sale 207, in New Orleans.

It attracted $487,297,676 in high bids--the most the area has generated in a decade. The sale was conducted by Interior's Minerals Management Service (MMS) and had 53 companies submitting 423 bids on 319 tracts comprising over 1.8 million acres offshore Texas. The sum of all bids received totaled $607,134,968.

"The level of bidding, which peaked at $61.1 million for a single tract in the Alaminos Canyon region, at times drew gasps of surprise from the crowd," reports the New Orleans Times-Picayune.

Approximately 17 percent of the tracts receiving bids are in ultra-deep water (more than 1,600 meters). The deepest tract bid on is Alaminos Canyon, Block 783 in 2,977 meters of water. The highest bid received on a tract was $61,110,000, submitted by Statoil Gulf of Mexico LLC for Alaminos Canyon, Block 380.

"In the midst of the national discussion about energy production, the activity at today's sale signals that the offshore oil and gas industry is serious about developing our nation's resources," said Interior Secretary Dirk Kempthorne.

Kempthorne's view might be just a little simplistic. The industry may, indeed, be serious in its intent--but there remain questions about its ability to ramp up up offshore exploration capacity

Closer study of the sale statistics, though, reveals that only 10 per cent of the acreage offered attracted bids--and many tracts got only a single bid (SEE MAP). And the big bids came from the big players.

The preponderance of single bids may reflect a lack of up to date data on what's out there--a situation that could be even more problematical in the areas currently off limits for drilling. Another constraint on opening up new areas for drilling is, of course, tightness in the supply of rigs.


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