Mexico Awards First Offshore Exploration Tenders

Abstract

Country Profile The new era of Mexican oil exploration has officially begun, but not quite as the government had hoped. Only 2 of 14 shallow-water blocks offered in the country’s first public tender were awarded in mid-July. Blocks 2 and 7 went to a consortium led by a Mexican-based startup, Sierra Oil. Its partners are Talos Energy of Houston and United Kingdom-based Premier Oil. Just seven firms made bids in the auction that Mexican officials predicted would be significantly more competitive. The auction was conducted by the National Commission of Hydrocarbons (CNH) in Mexico City and served as the country’s historic return to the privatization of oil and gas exploration since the industry was nationalized in 1938. The Mexican government believed at least four or five blocks would be successfully awarded and independent estimates were as high as seven. Juan Carlos Zepeda, president commissioner of the CNH, acknowledged that the government fell short of its goal to award 30% of the blocks. “Round One did not show the results we expected,” he said at the conclusion of the auction. “Without any doubt, an underlying factor is low oil prices, which have resulted in lower investment capacity from companies.” He added that the blocks on auction also had a higher degree of geologic uncertainty compared with blocks set for subsequent auctions. The blocks not awarded may be restructured and auctioned off in a later round. In defending the auction results, Zepeda said the government is taking little financial risk to gain big rewards. When factoring in taxes and royalties, and assuming discoveries are made, the government will collect at least 74% of the profit share for Block 2 and at least 83% for Block 7. “Both contracts were awarded under very positive terms for the state and that is the objective of this—to seek the highest possible income for the state,” Zepeda said. Block 7 was the most competitive, attracting four qualified bids and one that fell below the revenue-sharing minimum. Bids on three other blocks were disqualified because they fell 5% below the government’s threshold for revenue sharing. The minimum profit share with the Mexican government was set at 40% for most blocks and 25% for heavy oil and wet gas blocks.