The Gulf of Mexico is seeing little change in leasing and permitting activity. The U.S. Department of the Interior's Minerals Management Service (MMS) completed its bid evaluation process in June for Central Gulf of Mexico Lease Sale 185, which took place March 19. The MMS accepted 545 of the 561 high bids it received in the sale, for a net sum of $297.6 million. The 16 bids rejected as insufficient totaled $17.9 million. Leasing activity in the region has been relatively stable for three consecutive years. Sale 187, the next federal western Gulf offering, is scheduled for August 20 in New Orleans. The sale is likely to attract a similar number of bids as other recent western Gulf sales. Under the current MMS leasing plan, one central Gulf and one western Gulf lease sale will be held each year through 2007. The agency also has two eastern Gulf sales scheduled. One will take place this December, while the other is tentatively scheduled for March 2005. Due to the limited amount of acreage offered in the eastern Gulf planning area, operator interest is not expected to be great. Nonetheless, some operators are targeting deep-shelf gas plays in the central and eastern Gulf, and exploration successes in these areas could lead to increased interest in the acreage. It appears that activity in this niche play is on the rise, as approximately 30% of the blocks receiving bids in the most recent central Gulf lease sale have deep-gas potential. Overall, deep-shelf potential is not likely to fuel a substantial increase in leasing and exploration activity, however. According to the MMS, 74 deep wells were spudded in shallow water in 2002, down from 94 in 2001 and the same number in 2000. Year-to-date for 2003, ODS-Petrodata Consulting & Research has recorded 43 deep-shelf well spuds, and estimates that 35 to 40 additional deep-shelf wells will spud during the second half of the year. Shallow-water gas production in the Gulf of Mexico declined from 4.8 trillion cubic feet (Tcf) in 1996 to 3.9 Tcf in 2000. In response, the MMS implemented royalty-relief incentives in 2001 for deep-shelf drilling on new leases acquired after January 1, 2001. In March of this year, the agency proposed additional incentives for deep-shelf drilling on leases acquired before 2001. The incentives, if implemented, will affect some 2,400 existing Gulf of Mexico leases. It is too early to gauge the success of the MMS' effort to slow the decline in Gulf of Mexico gas production through deep-well incentives. While the industry has the capacity to drill 450 to 550 deep-shelf wells per year in the U.S. Gulf, operators do not have the will, the prospects or the economic motivation to drill anywhere near that number in the near-term. Another disheartening indicator is that permitting activity in the U.S. Gulf has fallen off the relatively stable pace of the last three years. Activity in mid-water-depth areas has been particularly slow this year, with only five permits reported by the MMS for wells in 501 to 1,500 feet of water. The total number of wells drilled in the U.S. Gulf has declined every year since 2000, when 1,029 wells were drilled. Last year, 810 wells were drilled. This year, operators are on pace to drill an estimated 900 wells in the Gulf's U.S. waters, but only if they maintain the pace of drilling set in the first half. -Thomas E. Marsh, ODS-Petrodata Group