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Petroleum News: E&P independents a growing force: Independents displace ‘Big Oil’ …

Independents displace ‘Big Oil’ as dominant player in 2005, 2006 Gulf of Mexico federal outer continental shelf lease sales
Ray Tyson
For Petroleum News
Once upon a time in the Gulf of Mexico, the exploration and production independent was largely relegated to the shallow and relatively inexpensive waters of the continental shelf when it came to bidding in federal oil and gas lease sales. No more.
In fact, the last two Central Gulf of Mexico lease sales not only clearly demonstrated that E&P independents are capable of playing hardball with the big oil and gas companies, they have displaced them as the dominant bidder in offshore lease sales.
For one, the independent explorer-producer has mastered the fine art of partnering up with other companies on large bids to secure desired oil and gas prospects. Moreover, time has proven that E&P independents are as good, or arguably better, than the majors at finding commercial hydrocarbons on their leases.
Independents walked away from last year’s Central Gulf Lease Sale 194 with the lion’s share of exploration blocks and accounted for the 10 highest bids in the entire sale, including a sale-high $21.2 million submitted by partners Dominion E&P and Stone Energy.
In this year’s Central Gulf Lease Sale 198, the best showing in eight years with a hefty $588 million in total high bids, E&P independents again came to do battle, capturing tracts with some of the highest bids in recent memory.
E&P independents accounted for six of the highest 10 single bids in this lease sale, including a nearly $34 million bid submitted by partners Newfield and Anadarko for Green Canyon block 551, a highly competitive deepwater tract that received six bids, all but two from other independents.
Other top-ten single bids submitted by independents included Woodside’s $26.6 million bid for Green Canyon block 452, Dominion-Hydro’s $21.4 million bid for Atwater Valley block 428, Noble-Samson’s $20.2 million bid for Mississippi Canyon block 948, Samson’s $11.1 million bid for South Marsh Island Area block 38, and Kerr-McGee-Dominion’s $8.4-million bid for Mississippi Canyon block 945.
When broken down by the sum total of high bids per individual company, E&P independents again scored six out of 10: Dominion’s $41.4 million for 16 blocks, Newfield’s $32.2 million for six blocks, Woodside’s $32.1 million for 11 blocks, Samson’s $27.1 million for 10 blocks, LLOG’s $26.6 for 11 blocks and Anadarko’s $20.3 million for 13 blocks.
Independents got more for their buck
Additionally, E&P independents got more for their buck, taking eight of the top 10 slots in terms of total blocks won compared to the amount of high bids doled out to capture them. BHP Billiton shelled out just $7.6 million for 26 blocks, Hunt Oil $10.9 million for 23 blocks, Dominion $41.4 million for 16 blocks, Hydro $20.1 million for 14 blocks, Anadarko $20.3 million for 13 blocks, Republic Exploration $3.3 million for 12 blocks, Woodside $32.1 million for 11 blocks and LLOG $26.6 million for 11 blocks.
While Amerada Hess’ $42.8 million bid for a deepwater block in Green Canyon was the highest single bid in Sale 198, E&P independent Samson’s $11.1 million bid for a block in South Marsh Island Area was the highest bid on the Gulf’s gas-prone continental shelf.
Also successful with drill bit
The growing success of E&P independents in Gulf of Mexico lease sales has translated into success with the drill bit in exploration and ultimately commercial production.
Both in exploration and production, companies like Devon Energy, Kerr-McGee and Anadarko, among the largest E&P independents in the United States, are forces to be reckoned with in the Gulf’s deep and ultra-deep waters, initially the exclusive playgrounds of deep-pocket majors like ExxonMobil, Shell, Chevron, ConocoPhillips and BP.
Devon has accumulated a huge offshore position, most notably in the emerging Lower Tertiary trend of ultra-deepwater Walker Ridge, where Devon has been party to major discoveries St. Malo, Cascade and Jack. This area is so remote and expensive that the producers have yet to figure out exactly how they plan to get production from these discoveries ashore.
Kerr-McGee is among the first E&P independents to venture into the Gulf’s deeper waters, and is a parent to the so-called “hub-and-spoke” approach to offshore development. This entails finding a large enough field to justify a central production facility and then tying in smaller satellite accumulations as they are discovered. Kerr- McGee’s Nansen-Boomvang complex in East Breaks was among the first Gulf developments to employ the hub-and-spoke concept.
Anadarko, a relative latecomer to deepwater Gulf, had early exploration success at its 100 percent owned Marco Polo field in Green Canyon, followed by nearby discoveries K2 and K2 North.
Anadarko’s Independence Hub online in ‘07
However, it is in the Eastern Gulf where Anadarko hit its first homerun, accounting for seven natural gas discoveries that will be funneled through an Anadarko-operated central production facility known as Independence Hub, which is expected to come online in 2007 ultimately producing 850 million cubic feet of gas per day from nine fields.
Devon, Kerr-McGee and Dominion also are hub participants, making Independence Hub truly an independents’ hub.
In addition to the growing influence of E&P independents in Gulf of Mexico lease sales, the sales also are taking on a more international flavor. Spain’s Repsol made its debut in Sale 198 March 15, joining other non-U.S. based energy companies, including Brazil’s Petrobras, Italy’s Eni, Australia’s BHP and Woodside and Canada’s Nexen. Repsol submitted the sixth highest bid in the sale — $20.2 million for block 304 in Green Canyon.
Small E&P independents also are making their mark on lease sales these days, with each sale bringing a few new players. Among the smaller independents joining this exclusive club for Sale 198 were Badger Oil, Frankel Offshore Energy and Plains Exploration & Production.
Ray Tyson is editor and publisher of

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