BIDDING AND LEASING TRENDS

The Gulf experienced a lull in leasing activities in 1999 � about a four-fold decrease compared with the 1998 levels.

However, interest is rekindling in blocks in the 200-m (650-ft) or less range and in the greater than 800-m (2,625-ft) range, evidenced by increased leasing activities in the 1999-2003 interval.

Figure 24. Number of leases issued each year, subdivided by DWRRA water-depth categories. (Click image to enlarge)

Note that shelf leasing has once again outpaced leasing in water depths greater than 800 m (2,625 ft).

Some of the resurgent interest in the shelf area may be the result of the MMS�s recent royalty suspension program for new deep-gas development in water depths less than 200 m (650 ft). Data in figure 24 include 95 leases awarded in Sale 181 (2001) and 14 leases in Sale 198 (2003), both Eastern GOM sales.

All of the leases in these Eastern GOM sales are located in water depths of 1,600 m (5,250 ft) or greater.

Figure 25a was derived from the data in figure 24 but displays the deepwater categories used elsewhere in this report (shallow-water data are excluded from figure 25a). These deepwater data show the rapid increase in leasing activity that began in 1995. Although GOM leasing activity plummeted in 1999, there has since been a steady increase in leases awarded in the 1,500-4,999 ft (457-1,524 m) and the 5,000-7,499 ft (1,524- 2,286 m) intervals since that time.

Figure 25a. Number of leases bid on for each deepwater interval. (Click image to enlarge)

Figure 25b shows the total amount of money spent annually for leases in each water-depth range. Large financial investments were made by the oil and gas industry from 1996 through 1998. Bid amounts were depressed in 1999, moderately increased to 2001, and slightly decreased since that time.

Figure 25b. Total bid amounts in deepwater intervals. (Click image to enlarge)

Most important for lease trend analysis is the average bid amount per lease as depicted in figure 25c.

Figure 25c. Average bid amount per block in deepwater intervals. (Click image to enlarge)

Overall, the average bid price for all deepwater leases steadily increased from 1992 through 2001.

Beginning in 2002, there was a downturn in average bid amount per deepwater block. The high average bid amounts for 2001 reflect the fact that the industry bid large amounts per block for leases in the

Eastern GOM. This was the first opportunity in 16 years for companies to bid in an area immediately adjacent to discoveries in the Central GOM area.

As the value of deepwater leases increased throughout the 1990�s, MMS rejected an increasing number of deepwater high bids that it viewed as insufficient.

Figure 26 shows that tracts with rejected bids moved into increasingly deeper waters over time.

Figure 26. Rejected shallow- and deepwater Gulf of Mexico bids. (Click image to enlarge)

The rejection trend reflects the fact that, as more deepwater fields began production, they provided analogs (with high production rates, thick reservoir sections, and production infrastructure) and thus reduced the risk on similar deepwater blocks, leading to an increase in the estimated net present worth of the unleased deepwater blocks.