Mexico’s Second Deepwater Auction Successful

Abstract

Mexico’s second deepwater bid round failed to disappoint as 19 of 29 blocks were awarded, including nine to Anglo-Dutch supermajor and Mexican offshore newcomer Shell. Eleven international firms from 10 countries bidding individually and in consortia won blocks—thought to be mostly oil-rich—in the Perdido Fold Belt, Cordilleras Mexicanas basin, and Salina basin of the Gulf of Mexico. Nineteen firms from 15 countries placed 39 bids overall. The winning bids comprised 44,178 sq km, 23 well commitments, and $525 million in tiebreak payments. Mexico’s National Hydrocarbons Commission (CNH) announced the results 31 January in Mexico City. Benjamin Torres-Barron, partner at multinational law firm Baker & McKenzie, which represented four of the companies that participated in the round, said the auction was “very successful” with results “better than everybody expected.” Estimates prior to the event, including those of the government, had approximately 7–10 blocks being awarded. Instead, about two-thirds of all available blocks were awarded, making Round 2.4 “a great success for the Mexican government,” said Eduardo Corzo Ramos, counsel with international corporate law firm Haynes & Boone. “Very important companies participated and in the bid values you can see how interested these companies are in Mexico’s energy sector.” Ramos said he was impressed by the strength of the bids and high-dollar tie-breakers placed by the participating firms. “If you look at the winners, everyone was hitting the maximum [royalty of 20%] with a maximum investment factor.” Competition was particularly fierce for Salina basin Blocks 29 and 21, respectively won by Shell and a consortium led by Repsol with tiebreak bonuses of $110 million and $151 million. Shell’s haul comprised four blocks won on its own, four in a consortium with Qatar Petroleum, and one more in a consortium with Pemex. Five were in the Perdido Fold Belt just south of the Mexico-US maritime border, and four were in the Salina basin to the southeast in the Bay of Campeche. “We saw a vast, overwhelming victory by Shell,” said Torres-Barron. “I think Shell was very aggressive based on its prior experience” in Mexico’s first deepwater auction, Round 1.4 held in December 2016, in which the firm’s participation comprised a single failed bid alongside Atlantic Rim Mexico for Block 5 in the Salina basin. Shell learned that “you cannot have all the eggs in one basket,” and therefore diversified its bids through a number of blocks this time around, he said. Shell concurrently announced on 31 January that it made “one of its largest US Gulf of Mexico exploration finds in the past decade” near Perdido in perhaps a signal that a comeback is under way for offshore exploration and development. Chevron and Total, two other majors who have actively participated in Mexico’s deepwater rounds, also reported a US gulf discovery on 31 January.