Mexico awards three blocks in second tender

OREANDA-NEWS. October 01, 2015. Mexico awarded three out of five shallow-water development contracts offered in today's closely watched upstream tender, a result broadly seen as a success after a disappointing first tender held in July.

The winning bidders are Italy's Eni; BP-controlled Pan American Energy (PAE) with Argentinian firm E&P Hidrocarburos y Servicios; and US independent Fieldwood, in consortium with Mexico's Petrobal.

The tenders are part of Mexico's first licensing round implemented under a sweeping energy reform approved last year. The reform dismantled state-owned Pemex's long-held monopoly.

Today's auction was comprised of nine Gulf of Mexico blocks divided into five production-sharing contracts that contain a total estimated 355mn bl of oil equivalent.

Mexico is hoping the tenders will revive oil production which has been trending downwards toward 2mn b/d for more than a decade.

Eni won Block 1 comprised of the Amoca, Miztin and Tecoalli fields, containing proven and probable reserves (2P) of 121.6mn bl of oil equivalent (boe), with a bid of 83.75pc for the state and a 33pc increase in the minimum work commitment.

The firm outbid Russia's Lukoil, which offered 75.1pc to the state and no increase in the minimum work commitment.

PAE and its partner won Block 2 covering the Hokchi field with 66.7mn boe, offering the Mexican state 70pc with a 100pc additional work commitment. The runner up was Fieldwood and Petrobal, which offered 65pc to the state and a 10pc additional work commitment.

Fieldwood and Petrobal won Block 4 which includes the Ichalkil and Pokoch fields with an overall 85.8mn boe, based on a 74pc offer to the state and no additional work commitment. The partners submitted the sole bid for the contract.

Blocks 3 covering 17.7mn boe Xulum and Block 5 covering 63.9mn boe Misi?n and Nak failed to attracts bids.

The fields, discovered by Pemex more than 10 years ago, contain proven (1P) reserves that were never exploited by Pemex. Mexico's deputy energy secretary Lourdes Melgar says the government expects production to begin by the end of the current administration in 2018.

Combined peak production of all awarded blocks is expected to reach 90,000 b/d, Melgar said today, with an estimated total investment of \\$3bn.

Mexico's deputy finance secretary Miguel Messmacher added that the government's total participation in the blocks climbs to 90pc for Block 1, 82pc for Block 2 and 84pc for Block 3, once fiscal terms are included in the formula.

"We are happy, satisfied with the auction," Juan Carlos Zepeda Molina, head commissioner of oil regulator CNH, said after the event. "Lessons were learned from the first tender, adjustments were made, the government did its job."

The outcome appears to be a vindication of the government?s efforts to ease contract terms and conditions in the wake of the lackluster turnout in July.

Under the new terms, the winning firms were given more flexibility, a reduction in a corporate guarantee, a lower required bond guarantee and rights to carry out additional exploration activities on the blocks.

Mexico's finance ministry also decided to unveil the required minimum level of profits for each contract two weeks ahead of the tender, as three of the rejected blocks in the first July auction had fallen only 5pc or less below the government's reserved minimum threshold.

Overall, 20 firms had pre-qualified for the tender, either individually or in consortiums, making a list of 14 participants.

Nine out of the 14 presented bids in today's auction, with Spain's Cepsa, India's ONGC Videsh, Shell, Chevron and US Plains sitting on the sidelines.