Mexico considers risk adjustment for bidders

OREANDA-NEWS. April 22, 2015. Mexico will allow bidders on its landmark oil block auctions to keep a higher share of positive price shocks than first considered as the country works to balance qualified bidders in a low oil price environment with assuring citizens the state will benefit from opening resources up to the private sector.

The government was examining changes to the so-called R Factor in upcoming contracts for exploration, the Ministry of Finance and Public Credit said this morning at the IHS CERAWeek conference in Houston, Texas. The mechanism ensures that the government shares the benefit from unexpectedly good oil production results, such as a positive price shock, or other development that leads to a larger-than-anticipated level of profit.

Mexico will adjust higher by 5pc both the share of the higher profit level and the allowed rate of return that a contractor may receive in an acknowledgement that risks have changed over the course of the early rounds of bidding on Mexican production, the ministry said.

The global benchmark price of oil has fallen by more than half since June 2014. The drop led Mexico to delay the first licensing round for production blocks and contributed to lower-than-expected participation levels in an upcoming second round of bidding.

"We are in an environment of higher risk and obviously returns have to be higher in order to compensate for greater risk," undersecretary for revenues Miguel Messmacher said.