Mexico eases upstream contract terms

OREANDA-NEWS. June 01, 2015. Mexico's oil regulator CNH has approved more flexibility in the terms of production-sharing contracts governing 14 shallow water exploration blocks that kicked off the country's first-ever licensing round in December.

The package was the first of five tenders in its historic first licensing round that Mexico hopes will help reverse a decade-long decline in crude production, after a peak at 3.5mn b/d in 2004. Last month, Mexico's state-run Pemex produced a record low 2.201mn b/d, down by 11pc from a year ago.

The bidding round followed a sweeping energy reform that ended Pemex's long-held monopoly in the oil sector and will culminate in early July with coveted deepwater acreage.

Among the modifications approved today by the CNH in response to industry comments are lower and more flexible tax rates and the removal of a controversial restriction on the number of areas participants can bid on. The 26 pre-qualified companies can now bid on all 14 blocks.

In the event of a subsalt discovery offshore, companies will now have the chance for an expanded exploration period. In case of a natural gas deposit, the timeframe in which the firms must evaluate the scope of the discovery was extended from one to two years, with an unchanged one-year extension.

The oil regulator waived another restriction to allow operating firms already part of a consortium to also bid individually on other blocks – a "significant change" in an industry where "companies are seeking more partners" after a sharp decline in global oil prices in mid-2014, CNH president Juan Carlos Zepeda Molina said.

"Mexico seems to be listening," an energy finance executive said.

Participants have until 4 June to submit comments before the regulator publishes a final version of the contract on 9 June.

The deadline for participants to submit bids for the 14 blocks is 15 July.