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Drilling and Leasing Patterns Among Major and Independent Companies in the Deepwater Gulf of Mexico and Their Implication for Future Lease Sales

James Flanagan
IHS Energy, Houston, TX

In the deepwater Gulf of Mexico (GoM), statistics show that there is an inverse relationship between which companies control the leases and which ones are aggressively exploring. The majors control over 50% of the blocks in more than 400 meters of water, yet they drilled only 26% of the New Field Wildcats (NFW) between 2002 and mid-year 2005. Smaller independent companies drilled 74% of the NFWs despite controlling less than half of the deepwater acreage. A plausible explanation for this inverse relationship is that since the smaller companies have fewer worldwide prospects to select from after the portfolio management process is applied, they are more likely to drill their GoM prospects than are the majors. Portfolio management is a business process has wide industry acceptance and is unlikely to be dropped, but it is having an unintended consequence in the deepwater GoM by reducing and delaying NFW drilling.

The Department of interior (DoI) seems to believe there is an unacceptable divergence of business drivers which pits their desire for optimum GoM drilling against oil companies' need for optimum monetary return. Recently, they have increased yearly deepwater lease rentals and proposed another change that could drastically escalate them. With renewed national attention on projected domestic oil and gas shortages, additional changes to leasing and A&D activity may be taken by the DoI aimed at inducing changes in the way E&P companies approach their GoM business exploration business. The intention of these changes would be to put more blocks in the hands of smaller operators that have the proven expertise to operate safely in the deepwater.