Strong Gas Sale Bolsters Exploration Names

Those who believe the appetite for offshore exploration and drilling is dwindling should have spent Wednesday in New Orleans.

The annual Central Gulf of Mexico lease sale -- the process by which exploration and production companies bid on blocks of the sea in search of oil and gas -- was held in the Crescent city and, by all measures, it suggests the appetite for offshore exploration remains stout.

The sale, held by the U.S. Minerals Management Service, inked $573.3 million in high bids for lease blocks from 82 companies. Total bids -- the gross amount of money bid for available blocks -- was a hefty $978.3 million, 35% above last year's total bids and the largest amount bid since the 1998 auction. The sale included over 4,000 blocks equaling over 21 million acres of offshore Alabama, Louisiana and Mississippi.

While some may have speculated that the recent decline in natural gas prices would have put a damper on the lease sale, both the size of the bids as well as the breadth of interest suggests just the opposite is true: the Gulf of Mexico, especially deep gas potential in shallow water and deepwater exploration, remains one of the last vast frontiers for domestic natural gas exploration.

The bidding certainly supports that conclusion. Amerada Hess(AHC Quote) submitted the highest bid of the lease sale -- and the third highest bid in Central Gulf of Mexico lease sale history -- with a $42.8 million bid for Green Canyon Block 287, a block in 800-1,600 meters of water. In similar water depths, Anadarko Petroleum(APC Quote) and Newfield Exploration(NFX Quote) submitted a $34 million bid for Green Canyon 551.

Amerada Hess was also the highest gross bidder, offering $62.6 million for 13 blocks. Dominion Exploration(D Quote) offered $41.4 million for 16 blocks. The company with the highest bid on the largest number of blocks was BP(BP Quote), which provided the high bid on 73 blocks for $22.3 million.