Mexico awards 10 blocks in Round 2.1

Companies bid aggressively for blocks in south-east basins

Mexico awarded 10 of 15 shallow-water areas on offer during its second bid round for shallow water acreage, with both global giants and local players participating and Pemex inking two more partnerships.

Bidding heated up as the day went on during Mexico's second bid round for shallow-water oil and gas acreage, with Eni taking three new offshore blocks and Pemex sewing up two new partnerships with companies with Dea Deutsche Erdoel and Ecopetrol.

Anglo-Dutch supermajor Shell, after years of interest, also secured its first entry into Mexico, alongside French major Total taking Area 15 in the south-east basin, prospective for wet gas.

"We are highly satisfied," energy secretary Pedro Joaquin Coldwell told reporters during a press conference afterwards.

"It’s a very high percentage of blocks, which fills us with satisfaction even when the crude prices aren’t the best."

Coldwell said the Mexican state sees an investment of up to $8.19 billion over the lives of the contracts, and if carried to fruition up to 170,000 barrels of oil equivalent per day.

The energy secretary congratulated regulators for crafting contracts that had a “strong Mexican accent” but were still globally competitive, he said. 

Crucially, the terms for this round allowed companies to choose what their own work programmes would be, instead of a pre-determined set of wells and exploration dictated by the government, officials said.

Companies pledged a total of nine wells over the course of the initial four-year exploratory period, as well as a base work programme that includes both seismic work and surface studies.

Eni, in a consortium with UK-listed Cairn and start-up Citla, came out on top of a five-way contest for Area 7 in the south-east region of the country. Its offer was for a 75% additional royalty to the state with a two-well work programme.

The block was one of the most highly contested of the day, and also received offers from groups led by Spain's Repsol, Germany's Dea Deutsche Erdoel, US independent Noble Energy and China's CNOOC.

Eni also took Area 10 in the south-east basin, pledging the maximum additional royalty of 75% and two additional wells. Alongside Citla, it also took Area 14 with an offer of 37.27% additional royalty to the state.

The event also saw the first-ever tie registered for an area at an open bid event, with Area 9 attracting the identical offers of 75% additional royalty and two additional wells. Ironically the tie came between companies that had partnered on the other blocks: with the tying offers presented by first Eni and the second by Cairn-Citla.

The area in the end went to the Cairn-Citla group, which offered the winning bonus of $30 million to Eni's $20 million. The tiebreak cash will go to Mexico's treasury.

Area 6 was also quite competitive, with a consortium of Malaysia's Petronas and Colombia's Ecopetrol came out on top of a four-way contest.

The high bid was for a 65.19% additional royalty, plus one well, enough to beat out offers from Dea-Pemex, Murphy-Talos and Repsol.

Meanwhile Mexico's Pemex sewed up its third and fourth partnerships since the energy reforms after bidding jointly with Germany's Dea Deutsche Erdoel for Area 2 in the Tampico-Misantla basin and with Colombia's Ecopetrol for Area 8 in the south-east basins.

In Area 2, the duo narrowly beat out an offer from Italy's Eni and Russia's Lukoil, offering the winning bid of an additional royalty of 57.92% and a one-well work commitment.

The terms of the round valued that that offer just a hair ahead of the competing bid, which was for a 55.14% additional royalty and two-well commitment.

The area covers some 549 square kilometres, with a median prospective resource of 280.4 million barrels of oil equivalent

Pemex and Ecopetrol did not pledge an additional well on Area 8, but did offer a modest proposal of a 20.1% royalty to the state.

Pemex is focusing its strategy on partnerships to help bring in new technology and investments following energy reforms. It cemented its first partnerships last December in Round 1, where it won the deep-water Area 3 in the Perdido fold-belt with US supermajor Chevron and Japan's Inpex. It also teamed up with BHP Billiton for a farm-out of the deep-water Trion discovery.

Other blocks outside of the south-east basin attracted little interest, with Areas 1, 3, 4, and 5 receiving no bids.

Mexico continued its second bid offering for 15 shallow-water areas in Mexico City on Monday, after a total of 20 individuals and consortia submitted offers earlier in the day. 

A total of 36 individuals and consortia had initially pre-qualified to bid.

Mexico held its first-ever bid offering for shallow waters, Round 1.1, nearly two years ago in July 2015. Since then, regulators have significantly adjusted the terms involved as the country incorporated lessons leaned from that initial proceeding as well as events for onshore and deep-water acreage. 

With those changes, consultancy Wood MacKenzie forecasted in a note that 10 of the 15 blocks on offer this time will be awarded. 

"A record number of consortia have qualified for this offshore licensing round, which signals strong interest from industry to grow their positions in Mexico," Pablo Medina, senior Latin America research analyst at Wood MacKenzie, said in a note.

 "The combination of offering industry-nominated areas, competitive fiscal terms and companies' eagerness to qualify signals a successful closing in our view." Energy Secretary Pedro Joaquin Coldwell told media outlets last week that regulators hoped to award 35% to 40% of the blocks on offer.

The areas on offer are located in the Tampico-Misantla, Veracruz and the south-east basins, and are prospective for light oil, heavy oil and wet gas.

Each of the blocks cover an area of 594 square kilometres, and the average estimate for the combined prospective resource is about 1.58 billion barrels.

Round 2.1 Results

Area 1 - No bids

Area 2 - Dea Deutsche-Pemex

Area 3 - No bids

Area 4 - No bids

Area 5 - No bids

Area 6 - Petronas-Ecopetrol

Area 7 - Eni-Cairn-Citla

Area 8 - Pemex-Ecopetrol

Area 9 - Cairn-Citla, with $30m tiebreak

Area 10 - Eni

Area 11 - Repsol - Sierra Oil & Gas

Area 12 - Lukoil

Area 13 - No bids

Area 14 - Eni-Citla

Area 15 - Shell - Total