BP Spends Big In Latest Lease Sale In Gulf of Mexico

June 21st, 2012 by Trefis Team
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British oil major BP (NYSE:BP) was among the biggest winners in the latest Gulf of Mexico lease sale. The company won a total of 43 blocks for $240 million, becoming the third biggest spender in the latest round of auctions. [1] The Gulf is seeing renewed interest from exploration companies after the drilling moratorium in the region was lifted. BP already holds a large acreage in the Gulf and is the biggest producer of oil in the region. However, the company is looking to further consolidate in the region as its overall production continues to drop and a looming sale of its holding in Russian subsidiary TNK-BP could result in a major cut in output.

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Lease sale

The latest round of lease sales saw participation from 56 companies and the winners bid a total of $1.7 billion to win drilling rights in the blocks of the U.S. Gulf of Mexico. [1] The round drew considerably more interest that the lease sale last year, in which only 20 companies participated. The higher interest is because the blocks auctioned in the latest round were located in the central region of the Gulf, which is more attractive for explorers. Companies are also showing a renewed interest in the U.S. Gulf because of investment and regulatory issues in other countries. The U.S. is a safer destination for investments than other countries with deepwater reserves such as Brazil. Recent discoveries in the region are also raising hopes that more reserves are to be found in the region.

Historically, BP has been among the most active players in the U.S. Gulf of Mexico. The company still places strategic priority on the region despite the disastrous Macondo spill incident in 2010. Production declines and a possible sale of its holding in TNK-BP could force the company to further step up investments in the region. BP is targeting investments in the North Sea, the Gulf of Mexico and offshore Africa to reverse drops in its production levels.

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Notes:
  1. Gulf of Mexico oil leases fetch $1.7bn, FT [↩] [↩]