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Gulf of Mexico oil fields key to BP

By Jim Boulden, CNN
According to BP, the deep waters of the Gulf now provide 18 percent of U.S. oil production.
According to BP, the deep waters of the Gulf now provide 18 percent of U.S. oil production.
  • BP one of dozens of companies behind record-breaking bids for oil, gas leases in Gulf of Mexico
  • BP had the most number of successful high bids at a total offered of $336 million
  • In 2008 BP said Gulf of Mexico was "a showcase for BP's deepwater skills and technology"

London, England (CNN) -- In March 2008, BP and dozens of energy companies were behind a series of record-breaking bids for two sets of new oil and gas leases in the deep waters of the Gulf of Mexico.

The winners were announced at the Louisiana Superdome in New Orleans.

Of the two sales, the one for 5,500 tracts in 28.5 million acres of water in the central Gulf of Mexico attracted more than $3.6 billion in high bids -- a record amount since area-wide leasing began in 1983, according to the U.S. Department of Interior.

BP had the most number of successful high bids at a total offered of $336 million.

One of the bids it won was for the Mississippi Canyon Block 252 (MC252), which includes the Macondo prospect well -- the one currently leaking about 210,000 gallons, or 5,000 barrels, a day into the Gulf.

BP won the lease with a bid of $34 million for the 5,700 acre site, beating out nine other firms. The second highest bidder was LLOC Exploration Offshore, of Houston, Texas.

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BP sold a 35 percent interest to minority partners Anadarko and Mitsui.

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Macondo is leaking after the rig above it, owned by Swiss-based Transocean, exploded and sank.

The other sale in March 2008 was much smaller, with 36 tracts in the eastern Gulf of Mexico. It attracted high bids totaling $64 million from numerous oil companies and heralded a new partnership between the Federal Government and the states bordering the Gulf.

"Louisiana, Mississippi, Alabama and Texas will receive a greater share in all these revenues," stated the Interior Department's then-secretary, Dirk Kempthorne, at the time. "These states will share in 37.5 percent of the high bids from today's sales and all future revenues generated."

The immediate revenue sharing program was part of the Gulf of Mexico Energy Security Act of 2006.

"The new revenue ... will provide funds to meet the educational, environmental and infrastructural needs of their communities," said another department executive at the time, Randall Luthi.

The companies would also have to pay standard royalties to the government on the value of the oil and gas extracted.

After a number of false starts, the deep parts of the Gulf -- those in water deeper than 2,500 feet -- have become a key focus for BP's exploration arm, helped by its 1998 merger with U.S. oil company Amoco and its state-of-the-art imaging technology.

The largest-single producing field in the Gulf is BP's Thunder Horse joint venture with ExxonMobil, with 25 subsea wells. The platform above it is the world's largest semi-submersible vessel, created to be used in deep water. It was damaged by Hurricane Dennis in 2005, but the field was pumping oil by June of 2008.

In its 2008 annual review, BP noted that the Gulf of Mexico "is proving to be a showcase for BP's deepwater skills and technology. BP is now the number one producer there."

BP said last year that some of its existing Gulf of Mexico operations received "recognition as a 2009 New Orleans District Safety Award for Excellence (SAFE) for the High Activity Operator."

MC252 was an exploration field which BP hoped would build on its Thunder Horse success.

According to documents listed on the authoritative offshore Web site, in March 2009 BP submitted a plan to the Department of the Interior to start drilling the Macondo prospect with intentions to ramp up activity at the well last month, when the explosion occurred.

The DOI states that around 34 percent of the tracts that received bids in the sale that included MC252 were in so-called "ultra-deep water, or water that is deeper than 5,500 feet. That is because newer technology has allowed for exploration in ever deeper water.

According to BP, the deep waters of the Gulf now provide 18 percent of U.S. oil production, up from around 2 percent in 1995.

BP and the other energy giants will now be pressed on the safety and security procedures to prevent "blow-outs" when drilling in the new world of ultra-deep water.