Mexico to Auction Fifteen Offshore Blocks

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By MarEx 2016-07-20 17:59:32

Mexico's oil regulator has approved contracts and auction terms for 15 shallow water areas in the southern Gulf of Mexico, to be bid out early next year as part of a series of tenders following a sweeping energy overhaul.

The first phase of the so-called Round Two tender will feature 30-year production sharing contracts, the regulator known as CNH said. Winners will be announced on March 22, 2017.

The auction hopes to draw investment of about $750 million per block, or about $11.25 billion in total over the life of the contracts, said CNH president Juan Carlos Zepeda.

Ranging from 375 square miles (972 square kilometers) to 180 square miles (466 square kilometers) in size and containing mostly light oil, the blocks lie along the coast of Veracruz, Tabasco and Campeche states, location of most local production. They include nearly 650 million barrels of crude oil equivalent in proven reserves.

Hoping to reverse slumping oil output, Mexico ended the decades-long monopoly of national oil company Pemex in 2013, paving the way for private producers to operate on their own. But a sharp fall in crude prices has made that harder.

To pre-qualify for the auction, firms or consortia must be able to document technical capability from at least three exploration and production projects between 2011 and 2015, or total investments of at least $1 billion on such developments.

Eligible bidders must also have experience either as an operator or financial partner in either shallow or deep waters.

To bid alone or in consortium, the companies participating must meet minimum capital requirements of $1 billion. Or, the bidders can document assets worth at least $10 billion.

Contracts will be awarded based on which bidders offer the largest government take, using a formula that includes the share of pre-tax profits companies offer the state plus an additional investment commitment.

Local content procurement requirements range from 15 percent to 35 percent of goods and services over the contract lifespan.

The 2017 auction will follow three auctions that began last year covering both shallow water and onshore blocks. The first highly-anticipated deep water auction is scheduled to take place in December.

The three Round One auctions have met with mixed success, with several shallow water fields receiving no bids, while all onshore blocks offered late last year attracted winning bids.

In July 2015, the first auction phase of Round One offered 14 offshore blocks for exploration and production to private investors. Because of low crude oil prices and the terms of the contracts, only two of the 14 blocks received adequate bids to be awarded. A consortium of three companies, Sierra Oil & Gas, Talos Energy and Premier Oil, was awarded the second and seventh block of the auction. 

Mexico is one of the largest producers of petroleum and other liquids in the world, the fourth-largest producer in the Americas after the United States, Canada and Brazil, and an important partner in U.S. energy trade.