Bidders on Gulf of Mexico oil projects have high hopes

Chris Oynes had a hunch that the boom times were back for the oil industry in the Gulf of Mexico.

So Oynes, the director of the bidding this year for gulf oil leases from the interior department, bought a red jacket.

Directors have not worn red jackets in more than a decade, since the oil industry went into a deep decline after the boom years of the 1970s and early 1980s. But Oynes' hunch proved to be right. More than 1,000 people, with scores spilling into the hallway, crowded a ballroom of the Hyatt Regency in New Orleans last week and put in bids totaling $1.24 billion, the highest amount in 12 years, for rights to explore for oil and gas in the gulf. The winning bids totaled $824 million, up 58 percent from $520 million last year. The high bids reflected the growing excitement about major discoveries in the deep waters in the Gulf of Mexico, as well as the firm prices and strong demand for oil. "When you looked at the people in the room, it was really electric," said Bob Armstrong, the interior department's assistant secretary for land and minerals management. "Everybody was there to play." The big companies continued to dominate the bidding for the leases, with Shell Offshore Inc., a unit of Shell Oil Co., the U.S. subsidiary of the Royal Dutch/Shell Group, making winning bids totaling $71 million and Chevron Corp. bidding $51 million. Still, many independents like Vastar Resources Inc. and Kerr-McGee Corp. were also among the top bidders. Oklahoma City based Kerr-McGee and partners were the high bidders on 31 blocks offshore Louisiana. Kerr-McGee's total exposure for all high bids was $25.8 million. Located in water depths ranging from 36 to 8,500 feet, Kerr- McGee's interest in the blocks will range from 33.3 percent to 100 percent. The blocks are distributed equally over both shelf and deepwater areas. Award of these blocks will increase Kerr-McGee's leases in the Gulf of Mexico by 155,800 gross acres to more than 880,000 gross acres. Vastar said it was the successful bidder, at about $58 million, on 47 tracts covering 200,000 acres. "It's the majors that get their feet wet," said Andy Hardiman, Chevron's general manager of exploration in the Gulf of Mexico. "After that the midsize companies come following behind." "A lot more people are playing catch-up," he said. "They don't have a large acreage position in the deeper water and are recognizing the gap." About half the bids made were for tracts in deep water, where companies like Royal Dutch/Shell and British Petroleum have made large discoveries and proved that oil can be profitably recovered with the use of huge production platforms costing more than $1 billion. But it is becoming more difficult to obtain the equipment to explore. The oil-services industry, which provides the drilling rigs and a variety of support functions, is scrambling to keep up with demand. In the lean years of the late 1980s, hundreds of companies went out of business or merged. Now many companies that survived, still recalling those hard times, are reluctant to make the big investments needed to build new rigs. Thus rig-rental rates have soared. Rates for the more sophisticated rigs needed for drilling in deep water have climbed to about $124,000 to $145,000 a day in recent months, from $17,000 to $49,000 a day in 1990. At that, some oil-industry analysts believe that the rents are reaching such levels that some companies are finally beginning to invest in new equipment. Michael Henzi, who follows the oil-services industry for the brokerage firm Stephens Inc., said some companies were so desperate for equipment that they had been borrowing rigs that other companies have under long-term contract. Thus some companies that bid aggressively this year may end up watching their lease time to explore run on and not be able to take advantage of their rights. "You will have companies very optimistic about the deep water, but they won't have the rigs," Hardiman said.

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