The deepwater Gulf of Mexico remains a world-class resource potential, but competition from onshore unconventional resources has diminished the energy industry’s enthusiasm for the region, an analyst says.

Bill Marko, managing director Jefferies & Co. Inc., said the number of bidders for leases in the deepwater Gulf of Mexico has fallen 30% from March 2010 to June 2012 for at least two reasons.

Marko, speaking at Hart Energy’s recent A&D Strategies and Opportunities conference in Dallas, said GoM deepwater leasing and drilling activity has traditionally risen and fallen with changes in commodity prices. As commodity prices fell dramatically in mid and late 2008, the value of the deals completed in the region also plunged. Deal values gradually recovered as commodity prices regained their footing.

Multiple effects, both short term and long term, are slowing drilling in the deepwater GoM.

The April 2010 Macondo spill caused a short-term slowdown. The spill caused a temporary shutdown in drilling, which has since recovered, Marko said. It also increased regulatory cost, lengthened timelines for approvals, complicated bonding and other requirements, and strengthened political opposition to drilling in the region.

“It’s basically the smaller companies staying out of the sale because they’re concerned about betting the company or they’re concerned about capital requirements or they’ve got shale opportunities,” he said. “Smaller independents ask themselves, ‘Do I risk my company every time I drill a deepwater well?’ ” Marko said.

The development of shales and other unconventional resources have had a longer-term effect on the deepwater Gulf, Marko said. In addition, the number of deals in the region is much smaller than onshore because of the higher risks and capital required, Marko said.

Shales have taken the U.S. from eight years of known supply of natural gas to between 50 and 100 years. In addition, shales and resource plays have increased U.S. oil production for the first time in 30 years, and have lowered imports, he said.

“The shales have emerged as a world-class oil and gas area that competes for money and time with the deepwater. So that’s another headwind on the deepwater activity,” he said.

Gulf of Mexico deepwater is still a world class resource potential, but there are some key differences for operators and investors who have to consider onshore unconventional as an alternative. To start with, deepwater GoM has one landowner while shale and other resource plays have potentially thousands, Marko said.

The deepwater Gulf of Mexico has longer lead times than unconventional shale plays, “It’s not for the faint of heart,” he said of potential operators looking at the Gulf. Shale and resource plays, meanwhile, can have short lead times for initial production and longer lead times for ultimate development.

Because of the inherent risks involved in the deepwater Gulf of Mexico, leases traded at a lower multiple than conventional or resource plays, Marko said. Gulf of Mexico leases generally go for a three to four times annual EBITDA (earnings before taxes depreciation and amortization). Onshore resource plays trade for eight to 10 times annual EBITDA multiples, Marko said.

Meanwhile, the M&A crowd that actively trades assets in the deepwater Gulf of Mexico is a relatively close-knit community. Many of these companies continuously reshape their portfolios and assess a strategic fit with every lease.

“It’s a really fascinating business because everyone knows everyone else,” he said.”Companies love doing deals with each other and constantly have their eyes on each others’ assets.”