OREANDA-NEWS. Oil producing nations are beginning to signal some willingness to relax contract terms in the wake of today's lower oil price environment, Eni chief executive Claudio Descalzi said today.

Descalzi, appearing at the IHS CERAWeek energy conference in Houston, Texas, pointed to Egypt's willingness to change commercial terms.

Egypt has tried to attract investors in the lead-up to the event through reforms that included sweeping oil and gas subsidy reductions. Egypt's oil ministry said last year the reforms were aimed at saving \$6bn in the financial year 2014-2015.

Eni signed a deal worth around \$5bn to develop oil and gas projects in Egypt, with the aim of producing 200mn bl oil and 1.3 trillion cf (36.8bn m?) of gas over the next four years.

Companies and producing nations "are in the same boat," Descalzi said. "If we want to continue to produce and to invest, we have to find a compromise."

Descalzi is echoing a new theme developing in the industry about the need for countries to be more flexible on royalties, taxes and other terms in an era of \$50 oil. Total senior vice president for development, exploration and production Michel Hourcard said governments must understand "we cannot live today with the level of royalties and taxes that were in place in the good old years of \$120, \$130/bl."

Mexico is going to allow bidders on its landmark oil block auctions to keep a higher share of positive price shocks than previously contemplated. Mexican finance ministry undersecretary for revenues Miguel Messmacher said yesterday the government is examining changes to the so-called R Factor in upcoming contracts for exploration.

That plan would allow oil companies to recover more money up front before a progressive scale of payments to the government sets in. The mechanism is designed to ensure that the government shares in the benefits of a sudden jump in oil price or other development that provides unexpectedly good oil production results.

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, an acknowledgment that risks have changed over the course of the early portions of Mexico's bidding round.

The oil price drop prompted Mexico to delay the first package of its bidding round, covering shallow water exploration blocks. Participation in an upcoming second package, covering shallow water development blocks, is proving lower than anticipated. A third round will cover deep water.

Pemex exploration and production general director Gustavo Hernandez-Garcia said yesterday that with \$50/bl oil producers were not looking for shallow water acreage. "They were expecting deep water," he said.

But the US appears to be bucking the trend. The US Bureau of Land Management (BLM) on 17 April issued an advanced notice of proposed rulemaking that could pave the way for the administration to raise the 12.5pc royalty for production on federal lands onshore.

The notice did not say how high the agency is considering raising the royalty rate. But it did ask stakeholders if it should be increased to be consistent with the 18.75pc offshore rate. Royalty rates on state and private lands range from 12.5pc-25pc, the notice says.

Senate Energy and Natural Resources Committee chairman Lisa Murkowski expressed frustration with the move. It was clear the department planned to raise it eventually, she said. "But, really, right now?"