OREANDA-NEWS. December 07, 2016. Mexico award of nearly all the deepwater oil blocks on offer in a closely watched tender yesterday is widely seen as vindicating a 2014 reform that shattered the monopoly of state-run Pemex and opened the country?s long-cloistered energy patch. Big foreign oil companies have now breached one of the world?s remaining frontier provinces, undaunted by a prolonged period of tepid oil prices.

But there are more hurdles to span before Mexico sees a potential production revival and a restoration of its historic role as a relevant non-Opec supplier.

Among the lingering concerns of oil investors are Mexico infrastructure gap, regulatory capabilities, fiscal uncertainty and security concerns in some areas, in addition to the implications of a contentious administration north of the border.

For now, Mexico is basking in the success of the auction for 10 Gulf of Mexico blocks and Pemex?s first farm-out for a deepwater development block. Mexican officials say the awards will bring in some \\$41bn in investment over the life of the contracts and an additional 900,000 b/d to current production of 2.1mn b/d. Marquee oil companies took the day.

Although bidding was not especially brisk in most cases, in all only two of the blocks fetched no bids. Awards were based on royalty premiums and exploration commitments.

Perdido fold belt acreage across from the well-developed US side of the maritime border were awarded to China's state-run CNOOC, with two blocks; and one each for ExxonMobil with Total, and Chevron with Pemex and Japan's Inpex.

In the southern Gulf of Mexico less explored Salina basin, Norway's Statoil, BP and Total won two blocks. Malaysian state-owned Petronas and Mexican independent Sierra; and US independent Murphy, UK's Ophir, Petronas and Sierra secured one block each.

"We've had the participation of practically all big exploration and production companies in the world, we've even seen Mexican companies participate, and for the first time, Pemex partnering with other companies," Shell Mexico chief executive and Mexican oil chamber president Alberto de la Fuente told Argus after yesterday?s event. "This shows that the new energy model is working."

Shell was conspicuously absent from the winning roster although it bid for one of the blocks in partnership with US independent Atlantic Rim. The major operates the deepwater Perdido complex, including the Great White, Silvertip and Tobago fields, just over the maritime border. Its main partners are Chevron and BP, two of the auction winners. The proximity should allow for some cross-border logistical cooperation.

UK-Australian BHP Billiton won Pemex's farm-out for Trion, a deepwater Perdido fold belt field with proven, probable and possible reserves of 480mn bl of oil equivalent (boe). BHP Billiton secured the Trion area after a nail-biting tie-breaker with BP, one of the early movers in Mexico?s opening.

Trion will test Pemex working relationship with a foreign partner for the first time, a precedent for future joint projects, several oil executives have said.

The auction "shows the confidence the industry has in the reform," Timothy Callahan, who opened BHP Billiton?s Mexican office in 2014, told Argus.

Under severe financial strain, Pemex debuted in the auction after remaining on the sidelines of three previous tenders for shallow-water and onshore blocks in staggered Round One. Those tenders were awarded mainly to local and foreign independents. Yesterday?s outcome could embolden Pemex and the government to accelerate the offering of further farm-outs next year.

Mexico plans to conduct three more upstream tenders before the end of the administration in 2018, including more deepwater and onshore blocks as well as shale-prone acreage that had been previously shelved.

The current three tenders of Round Two will be completed by the first half of 2017. They will be followed by auctions in the northern autumn 2017, winter 2017 and a final one before the end of the six-year mandate of President Enrique Pea Nieto.